BNY Mellon Currency-Trade Fraud Suit Settled by Virginia
Bank of New York Mellon Corp., the largest custody bank, reached a deal to end a lawsuit accusing it of defrauding state pension funds through foreign-currency transactions, according to a spokesman for Virginia Attorney General Kenneth Cuccinelli.
The settlement provides $1.14 million to Grant Wilson, a former foreign exchange trader at the bank who made the allegations, said a person familiar with the matter who asked not to be identified because a judge hasn’t signed off on the request to dismiss the case.
The money is being paid by the state and not the bank, the person said. The state and the bank filed a request to dismiss the case in state court. The filing couldn’t be immediately confirmed from court records.
“The litigation is over and BNY Mellon and the funds have extended their respective business relationships for 10 years,” Brian Gottstein, a spokesman for Cuccinelli, said yesterday in an e-mail. “The case has been resolved by agreement of the parties, which allowed for the reworking and extension of the funds’ contracts with the bank. This resolution has conferred significant financial benefits for Virginia employees and retirees.”
BNY Mellon (BK) has been sued by several states and the U.S. attorney in Manhattan over pricing of foreign-currency trades on behalf of clients. Cuccinelli sued the New York-based bank in August 2011, claiming it violated state law by charging “undisclosed markups” on currency-exchange trades to six retirement funds. Virginia was seeking about $931.6 million in damages.
“BNY Mellon did not make any payments to the whistle- blower,” Kevin Heine, a spokesman for the bank, said in an e- mailed statement. “The whistle-blower case was dismissed by the court.”
The cases against BNY Mellon and other custody banks center on the pricing of small foreign-exchange transactions handled automatically on behalf of the pension funds, a service known as standing instruction.
The banks say they acted as a principal, selling one currency for another in arms-length transactions at a set price that customers were free to accept or reject.
The states claim the banks were obliged to act as an agent, obtaining the best possible exchange rate in the interbank currency market. Banks misled clients on how they set prices, the states contend.
The case is Commonwealth of Virginia v. Bank of New York Mellon Corp., 09-15377, Circuit Court for the County of Fairfax, Virginia (Fairfax).