Bank of New York Mellon Corp. Settles Currency Fraud Lawsuits Involving Pension Funds for $714M

Bank of New York Mellon Corp. (BK) has agreed to pay $714 million to settle claims that it bilked pension funds and others by overcharging for currency transactions. The settlements resolve cases by New York Attorney General Eric Schneiderman and Manhattan U.S. Attorney Preet Bharara, as well as both private cases and probes by the U.S. Department of Labor and the U.S. Securities and Exchange Commission.

The lawsuits involve the bank’s “standing instruction” for its foreign exchange program: Clients are supposed to let the bank unilaterally deal with foreign-exchange transactions.

The bank admitted that it notified certain clients that it was determined to obtain them the best rates possible even as the firm gave them the ones that were among the worst interbank rates. The bank had previously denied the claims because the lawsuits were submitted in 2011, not agreeing until the following year to modify pricing disclosures. In February, Bank of New York Mellon said it would modify 4tth quarter results to make room for a $598 million litigation cost as it was getting ready to resolve certain claims, including those involving foreign exchange.

As part of the resolutions, the bank said it would let go of certain employees, including products management head and managing director David Nichols. He has admitted to knowing that the bank failed to notify customers of its pricing methodology.

It was former bank employee Grant Wilson who acted as whistleblower to help the investigators in their case against the bank. Wilson is expected to collect awards from the settlements.

Of the settlements, $335 million will be divided between the state of New York and the DOJ. Schneiderman’s office said its share would primarily go toward compensating customers that were bilked, including the State University of New York and the New York State Deferred Compensation Plan. His office’s case was among the first to use the 1989 Financial Institutions Reform, Recovery and Enforcement Act, which lets the government pursue fraud impacting financial institutions that are federally insured. Schneiderman claimed that the bank made $2 billion in a more than ten-year period from its alleged deception. The U.S., with its case, said that between 2000 and 2011 the bank bilked clients of hundreds of million dollars.

$335 million will go toward settling private class action securities cases. $14 million will settle U.S. Department of Labor claims. $30 million will resolve SEC claims.

These probes are separate from a wider DOJ probe into claims that traders at leading banks colluded to rig foreign exchange rates.

Meantime, Bank of New York Mellon is undergoing an attack by one active investor. Shareholder Marcato Capital Management LP demanded that Gerald Hassel, the chief executive and chairman of the bank, be ousted. It also wants costs cut.

BNY Mellon to pay $714 million to settle foreign exchange cases, Reuters, March 19, 2015

BNY Mellon CEO Faces Shareholder Criticism, The Wall Street Journal, March 10, 2015

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