This was certainly one of the biggest stories last quarter and it seems that it was only the beginning – more and more pension funds are claiming that they were overcharged forex rates by forex banks such as BNY Mellon and State Street. This puts mainly those two banks under a very unpleasant spotlight and will most surely cost them future business.
Most recent update on the situation is that the Massachusetts’ treasurer said on Monday that Bank of New York Mellon Corp. overcharged the state’s pension fund by more than $20 million for foreign currency exchange transactions, the latest accusation of overcharging against the bank. This practice seems to have been going on from April 2007 and until May 2011 – much after the initial allegations were brought against this bank.
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Ohio Treasurer Josh Mandel has asked for a state investigation into whether banks may have manipulated foreign exchange rates charged to Ohio pension funds and the state’s injured worker insurance, potentially costing pensioners and businesses tens of millions of dollars over the past 12 years. In a letter Tuesday to Ohio Attorney General Mike DeWine, Mandel said he is concerned that the banks may have engaged in improper currency-trading practices “to maximize the banks’ profits, at the expense of Ohio public servants, businesses and taxpayers.”
I have a feeling that this is only the tip of the iceberg and that if these allegations turn into suits then they can bring some of these big banks down. The previous updates that we had add up to quite a risky situation for them:
- 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.