Massachusetts Treasurer: BNY Mellon overcharges state's pension fund by over $30 million

BNY Mellon and State Streep Corp are under increasing regulatory scrutiny for alleged overcharging of their institutional clients in forex

BNY Mellon and State Streep Corp are under increasing regulatory scrutiny for alleged overcharging of their institutional clients in forex transactions. Only two weeks ago Steven Grossman, Massachusetts State Treasurer, estimated that BNY Mellon overcharged the state’s pension fund by over $20 million, after additional analysis this figure now seems to be over $30 million.

State Treasurer Steven Grossman said he has unearthed another $10.5 million in “overcharges” to the state pension fund by Bank of New York Mellon — on top of $20 million found in an audit earlier this month.

A consultant initially scoured foreign currency exchange transactions for the state pension fund going back to Jan. 1, 2007, then widened the scope to cover the entire time the custody bank has worked for Massachusetts, or since 2000.

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“Given our initial findings, we wanted to take as comprehensive a look as possible at past foreign currency exchanges done on our behalf,” said Grossman in a statement.“It’s imperative that pension beneficiaries and taxpayers are treated fairly and that banks do not profit disproportionately at their expense.”

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Grossman, who serves as chairman of the Pension Reserves Investment Management (PRIM) board, has called BNY Mellon’s charges for so-called forex trades “excessive profiteering.”

BNY Mellon and Hub money manager State Street Corp. are both under investigation by federal regulators and have been hit with lawsuits claiming the financial giants overcharged certain pension funds. The state hired FX Transparency of Framingham in April to review forex transactions for the $50 billion state pension fund.

This is what BNY Mellon had to say: “We reject the notion that (PRIM) was ‘overcharged.’ Negotiated (foreign exchange) rates and standing instruction rates — typically used for smaller transactions in more difficult to trade currencies — are different for good reason,” the bank said in a statement today. “The standing instruction rates charged to (PRIM) were disclosed daily. (PRIM) had the ability every morning before 11 a.m. to opt out of the guaranteed standing instruction price range being offered for that day, but did not do so.”

Here are the latest events that took place relating to these cases:

  • 2009 – the California attorney general’s office has charged the State Street Corporation (company that owns Currenex) with fraud, accusing the company of cheating the state’s two largest pension funds of at least $56.6 million by overcharging them for a series of foreign exchange trades.
  • Feb 2011 – the Arkansas Teacher Retirement System sued State Street Corp.over claims that the Boston-based bank engaged in unfair and deceptive practices regarding foreign exchange transactions.
  • March 2011 – class action suit filed against Bank of New York Mellon (BNY Mellon) by Southeastern Pennsylvania Transportation Authority (SEPTA).
  • October 2010 – The Washington State Investment Board reached an $11.7 million agreement with State Street, without filing a lawsuit. Other states such as California, Virginia and Florida are taking legal action against custodial banks on behalf of their retirement funds.
  • May 2011 – SEC investigates State Street FX pricing.
  • June 2011 – Massachusetts calculates that it was overcharged over $30 million by BNY Mellon.

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