A federal judge said he was “unpersuaded” by Bank of New York Mellon Corp.’s arguments that he should dismiss a U.S. lawsuit claiming the bank defrauded clients in foreign-exchange transactions.
BNY Mellon, the world’s largest custody bank, yesterday asked U.S. District Judge Lewis Kaplan in New York to throw out the suit filed by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara in October 2011.
The U.S. argued against dismissal of the complaint, which accused BNY Mellon of defrauding clients, including public pension funds, of more than $1.5 billion through foreign-currency trades. Bharara’s office alleged that the bank and David Nichols, a managing director, violated the Financial Institutions Reform Recovery and Enforcement Act, or FIRREA.
“I am unpersuaded by the defendants’ arguments on FIRREA and you can expect I’ll deny the motion to that extent,” Kaplan told lawyers yesterday after hearing from both sides.
The statute, passed in the wake of the savings-and-loan scandals in the 1980s, requires a lower burden of proof than criminal charges and has a longer statute of limitations than other financial laws.
Prosecutors in Bharara’s office allege the defendants intentionally made material misrepresentations to prospective clients about the bank’s foreign exchange service, thereby committing mail and wire fraud that affected federal insured financial institutions.
BNY Mellon failed to disclose that it didn’t execute trades and simply assigned clients “virtually the worst prices of the day,” according to the complaint.
Under a partial settlement reached in January 2012, BNY Mellon agreed it wouldn’t use the phrase “best execution” to describe its standing instruction service to clients or say that it is free. The U.S. was still seeking hundreds of millions of dollars in civil penalties from the bank, Bharara said at the time.
The case is U.S. v. Bank of New York Mellon Corporation, 11-cv-06969, U.S. District Court, Southern District of New York (Manhattan).