Wall Street Bank Sued by Multiple State Governments Over Foreign Currency Dispute

'1 Wall Street' by Jim in Times Square (Flickr) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia CommonsThe Bank of New York Mellon Corporation, or BNY Mellon, faces several lawsuits filed by state governments alleging fraud in the bank’s investment of state funds in foreign currency markets. The Wall Street bank is reportedly the world’s largest deposit bank, with more than $26 trillion in assets in its custody and administration. It is also reportedly the oldest banking corporation in the country, originating in the Bank of New York founded by Alexander Hamilton in 1784. The current disputes involve accusations of manipulating foreign exchange rates, overcharging pension and retirement funds, and other alleged acts of mismanagement. This matter is of interest to New Jersey and New York small businesses because it could impact other international assets held or managed by a large bank. As businesses in places like New York City do an increasing amount of international business, issues affecting U.S. currency and finance become important to more than just the large banks.

Ohio is the most recent U.S. state to break with BNY Mellon and other Wall Street banks over this issue. In March, the state fired BNY Mellon and State Street Corp. from their roles overseeing the international assets of four of Ohio’s five pension funds. The two banks had handled foreign currency transactions for the pension funds, whose international holdings totaled $41.3 billion. The state treasurer expressed concerns that the banks had manipulated exchange rates, which potentially deprived the funds, and therefore state employees and retirees, of millions of dollars in earnings. These actions allegedly cost the state millions of dollars in overcharged fees.

Claiming fraud and deceptive trade practices, the Ohio Attorney General filed suit against BNY Mellon in mid-March. The suit claims that that bank “systematically overcharg[ed]” two of the pension funds, costing the state more than $16 million. Other states have also filed similar lawsuits, alleging various manipulations of exchange rates, and other financial malfeasance. The New York Attorney General filed a lawsuit in October 2011 seeking $2 billion in restitution. The United States Attorney in Manhattan filed a federal lawsuit around the same time, seeking penalties in the hundreds of millions of dollars for the federal government. Attorneys general in California, Florida, Massachusetts, and Virginia have filed similar suits.

Federal prosecutors in New York reached a partial settlement with BNY Mellon in January, but the government amended its complaint in February to seek additional damages. A judge in Virginia dismissed that state’s lawsuit against the bank earlier this month, finding that the state did not follow statutory procedures for submitting a claim prior to filing suit. A California federal judge dismissed part of that lawsuit in March, but transferred claims for breach of fiduciary duty, fraud, unfair business practices, and breach of contract to state court. Other states’ lawsuits are still pending.

The New York business attorneys at Samuel C. Berger, PC offer fixed-fee packages of legal services to businesses and entrepreneurs who want to do business in New York and northern New Jersey. To speak to a member of our skilled legal team, contact us today online or at (212) 380-8117.

Web Resources:

Complaint (PDF), United States v. Bank of New York Mellon Corp., United States District Court for the Southern District of New York, October 4, 2011
Amended Complaint (PDF), United States v. Bank of New York Mellon Corp., United States District Court for the Southern District of New York, February 16, 2012
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Photo credit: ‘1 Wall Street’ by Jim in Times Square (Flickr) [CC-BY-2.0], via Wikimedia Commons.