Post by ukipa on Oct 10, 2011 17:47:40 GMT 4
N.Y. state sues BNY Mellon for $2B
Sunday, October 09, 2011
By Len Boselovic, Pittsburgh Post-Gazette
Call it a $2 billion misunderstanding.
New York Attorney General Eric T. Schneiderman claims Bank of New York Mellon made nearly $2 billion overcharging pension funds and other large investors who thought the New York bank was executing low-cost foreign currency trades for them.
BNY Mellon, which faces a raft of other lawsuits over the same issue, says Mr. Schneiderman's "prosecutorial overreach" reflects "a fundamental misunderstanding" of how foreign currency markets work.
"We refuse to be coerced into admitting to and paying for wrongdoing that does not exist," the bank said in a statement.
If the bank prevails, it won't be because its clients did not try.
The federal prosecutor who co-chairs President Barack Obama's financial fraud task force also sued BNY Mellon last week. The civil complaint seeks hundreds of millions of dollars in damages over what U.S. district attorney in Manhattan, Preet Bharara, said was false, incomplete or misleading information the bank provided to its foreign exchange clients since at least 2000.
BNY Mellon said the federal lawsuit "suffers from the same flawed analysis" reflected in Mr. Schneiderman's complaint.
The bank is also facing lawsuits over foreign exchange transactions in California and Pennsylvania, where a complaint was filed by Philadelphia's regional transit authority. Attorneys general in Virginia and Florida have joined whistleblower lawsuits against the bank in those states. Massachusetts' attorney general filed a complaint on behalf of the state's public pension system.
State Street, a BNY Mellon competitor, is facing a lawsuit over its foreign exchange practices in Massachusetts as well as one brought by Arkansas' teachers pension fund. The company paid $12 million last year to resolve a foreign exchange dispute with the state of Washington.
Other clients and regulators have asked BNY Mellon and State Street for information or served subpoenas on them related to foreign exchange.
"We're trying to evaluate our legal options," said Christopher Craig, chief counsel for Pennsylvania Treasurer Rob McCord.
BNY Mellon is the custodian for more than $100 billion in state money, including its two pension funds and the Commonwealth Finance Authority.
The complaints center on BNY Mellon's and State Street's role as custodian banks, which hold securities owned by mutual funds, pensions funds and other large investors. Their services include record keeping, paying bills and handling the purchase and sale of securities.
When securities transactions occur in a foreign currency and a custodian bank's client wants the proceeds converted to U.S. dollars, the client can ask its custodian to do the exchange or hire someone else. If they use their custodian bank, investors can either negotiate rates for the service or operate under "standing instruction" contracts under which clients do not negotiate but agree to pay rates adjusted daily.
Pension funds and other investors are suing over standing instruction transactions. They assert the banks had a responsibility to protect their clients' interests when trading currency but instead pursued their own interests by charging more for the transactions. They also allege the banks misled them about how much they would be charged.
According to the lawsuit filed by Mr. Schneiderman, BNY Mellon earned seven times more on standing instruction deals than it did on negotiated ones.
The bank promised clients it would pay the best, most competitive or most attractive exchange rate of the day, but it charged them "the worst price of the day," according to the complaint.
"It does not obtain or attempt to obtain the best rate for its clients," the lawsuit states.
The lawsuit includes a seven-page account of supposed misrepresentations BNY Mellon made in proposals to a long list of prospects that include the Andrew W. Mellon Foundation, PNC Bank and First Energy.
In asking a federal judge to dismiss the lawsuit filed by the Southeastern Pennsylvania Transportation Authority, BNY Mellon said it abided by the terms of its agreement with the transit authority. SEPTA and other clients understand how they will be charged for standing instruction transactions and realize that they can either pay those rates, negotiate different rates with BNY Mellon or exchange their currency somewhere else, the bank's lawyers wrote.
BNY Mellon says clients who use its standing instruction services are paying wholesale rates for what are essentially retail trades. The vast majority of trades involve less than $500,000, or half of the $1 million normally needed to qualify for wholesale pricing, the bank said.
In a letter published last week in major newspapers, BNY Mellon said it, not its clients, assumes the risk involved in the currency trades. "No rational institution" assumes those risks at no cost, the letter stated.
Litigation over foreign currency transactions reflects the regulatory pressure financial institutions are facing.
"When the Congress and president believe that government should fix prices in the banking industry, apparently lawsuits of this nature make sense," Rochedale Securities analyst Richard Bove said in a note to clients.
Read more: www.post-gazette.com/pg/11282/1180559-435-0.stm#ixzz1aO1ReZ6L
Sunday, October 09, 2011
By Len Boselovic, Pittsburgh Post-Gazette
Call it a $2 billion misunderstanding.
New York Attorney General Eric T. Schneiderman claims Bank of New York Mellon made nearly $2 billion overcharging pension funds and other large investors who thought the New York bank was executing low-cost foreign currency trades for them.
BNY Mellon, which faces a raft of other lawsuits over the same issue, says Mr. Schneiderman's "prosecutorial overreach" reflects "a fundamental misunderstanding" of how foreign currency markets work.
"We refuse to be coerced into admitting to and paying for wrongdoing that does not exist," the bank said in a statement.
If the bank prevails, it won't be because its clients did not try.
The federal prosecutor who co-chairs President Barack Obama's financial fraud task force also sued BNY Mellon last week. The civil complaint seeks hundreds of millions of dollars in damages over what U.S. district attorney in Manhattan, Preet Bharara, said was false, incomplete or misleading information the bank provided to its foreign exchange clients since at least 2000.
BNY Mellon said the federal lawsuit "suffers from the same flawed analysis" reflected in Mr. Schneiderman's complaint.
The bank is also facing lawsuits over foreign exchange transactions in California and Pennsylvania, where a complaint was filed by Philadelphia's regional transit authority. Attorneys general in Virginia and Florida have joined whistleblower lawsuits against the bank in those states. Massachusetts' attorney general filed a complaint on behalf of the state's public pension system.
State Street, a BNY Mellon competitor, is facing a lawsuit over its foreign exchange practices in Massachusetts as well as one brought by Arkansas' teachers pension fund. The company paid $12 million last year to resolve a foreign exchange dispute with the state of Washington.
Other clients and regulators have asked BNY Mellon and State Street for information or served subpoenas on them related to foreign exchange.
"We're trying to evaluate our legal options," said Christopher Craig, chief counsel for Pennsylvania Treasurer Rob McCord.
BNY Mellon is the custodian for more than $100 billion in state money, including its two pension funds and the Commonwealth Finance Authority.
The complaints center on BNY Mellon's and State Street's role as custodian banks, which hold securities owned by mutual funds, pensions funds and other large investors. Their services include record keeping, paying bills and handling the purchase and sale of securities.
When securities transactions occur in a foreign currency and a custodian bank's client wants the proceeds converted to U.S. dollars, the client can ask its custodian to do the exchange or hire someone else. If they use their custodian bank, investors can either negotiate rates for the service or operate under "standing instruction" contracts under which clients do not negotiate but agree to pay rates adjusted daily.
Pension funds and other investors are suing over standing instruction transactions. They assert the banks had a responsibility to protect their clients' interests when trading currency but instead pursued their own interests by charging more for the transactions. They also allege the banks misled them about how much they would be charged.
According to the lawsuit filed by Mr. Schneiderman, BNY Mellon earned seven times more on standing instruction deals than it did on negotiated ones.
The bank promised clients it would pay the best, most competitive or most attractive exchange rate of the day, but it charged them "the worst price of the day," according to the complaint.
"It does not obtain or attempt to obtain the best rate for its clients," the lawsuit states.
The lawsuit includes a seven-page account of supposed misrepresentations BNY Mellon made in proposals to a long list of prospects that include the Andrew W. Mellon Foundation, PNC Bank and First Energy.
In asking a federal judge to dismiss the lawsuit filed by the Southeastern Pennsylvania Transportation Authority, BNY Mellon said it abided by the terms of its agreement with the transit authority. SEPTA and other clients understand how they will be charged for standing instruction transactions and realize that they can either pay those rates, negotiate different rates with BNY Mellon or exchange their currency somewhere else, the bank's lawyers wrote.
BNY Mellon says clients who use its standing instruction services are paying wholesale rates for what are essentially retail trades. The vast majority of trades involve less than $500,000, or half of the $1 million normally needed to qualify for wholesale pricing, the bank said.
In a letter published last week in major newspapers, BNY Mellon said it, not its clients, assumes the risk involved in the currency trades. "No rational institution" assumes those risks at no cost, the letter stated.
Litigation over foreign currency transactions reflects the regulatory pressure financial institutions are facing.
"When the Congress and president believe that government should fix prices in the banking industry, apparently lawsuits of this nature make sense," Rochedale Securities analyst Richard Bove said in a note to clients.
Read more: www.post-gazette.com/pg/11282/1180559-435-0.stm#ixzz1aO1ReZ6L
