State Street Corp. agreed to pay $60 million to settle investor claims it inflated revenue by overcharging clients for foreign-exchange services, in a pact that resolves almost four years of litigation.
The preliminary accord filed in Boston federal court yesterday requires the approval of U.S. District Judge George A. O’Toole. The lawsuit was brought on behalf of people who purchased stock in the bank from October 2006 to October 2009.
“State Street falsely told investors that it was earning hundreds of millions of dollars from legitimate foreign exchange trading operations,” plaintiffs’ lawyers said in court papers. In reality, they said, the bank was “artificially inflating its FX revenues by improperly overcharging its clients for FX services.”
A number of states had sued State Street, the third-biggest custody bank with $21 trillion in assets as of March 31, and Bank of New York Mellon Corp., accusing them of overcharging on some foreign-exchange transactions.
BNY Mellon changed its pricing model in November 2011, a month after New York Attorney General Eric Schneiderman and the U.S. Attorney’s Office in Manhattan sued claiming the bank made as much as $2 billion from fraudulent charges over 10 years from clients including New York City pension funds.
BNY Mellon last year agreed to repay Massachusetts’s public pension funds $15.45 million to settle claims it overcharged for foreign-exchange services.
State Street’s foreign exchange services pricing also has been the subject of an investigation by the U.S. Securities and Exchange Commission.
“We continue to deny the allegations made in these lawsuits and believe that they lacked merit,” the Boston-based bank said today in an e-mailed statement. “We agreed that the cases should be settled to eliminate the uncertainty, distraction, burden and expense of litigation.”
The Public Employees’ Retirement System of Mississippi and Union Asset Management Holding AG, which led the State Street investors’ suit, settled to avoid risks of having to prove liability and damages at trial, their attorneys said in yesterday’s filing.
The State Street settlement comes as Goldman Sachs Group Inc., JPMorgan Chase and Deutsche Bank AG fight allegations in a New York federal court that they rigged prices in the $5 trillion-a-day foreign exchange market.
The case is Hill v. State Street Corp., 09-cv-12146, U.S. District Court, District of Massachusetts (Boston).