Securities Law Blog

A whistleblower group has made allegations that Bank of New York Mellon Corp.’s (BNY Mellon) currency traders used a foreign-exchange system to create fake trades and overcharge Virginia pension funds by at least $20 million. The lawsuit was filed by a Delaware shell company called FX Analytics, who also filed a 2009 lawsuit in Florida against the bank.

According to the recently unsealed court documents, currency traders at BNY Mellon at times waited for hours before cherry-picking prices beneficial to them that they would charge the Virginia state pension fund. Instead of pricing the currency trade for the pension fund at the time it was made, BNY Mellon allegedly identified higher prices if the pension fund was buying currencies, and pocketed the difference. The suit claims the monthly custody report sent to the fund only showed the falsified rate.

The whistleblower group alleged that in an October 2009 trade, BNY Mellon profited after carrying out a foreign exchange of Canadian dollars for a client at the worst U.S. dollar-Canadian dollar rate of the day, enabling the bank to pocket about 141,250 Canadian dollars.

The state is investigating claims that the bank didn’t charge the pension funds the currency rates that the bank paid but consistently charged them the highest currency-conversion prices of the day, and pocketed the difference. The suit says the bank also overcharged when the pension fund exited the trades.

The suit is one of many related to the widening probe by state prosecutors into whether custody banks such as BNY Mellon shortchanged public pension funds in executing currency trades used to complete financial transactions abroad.