Attack on Bank of New York Mellon Continues; US & Schneiderman File Suit Over Forex Fees

From the New York Times (emphasis ours):

U.S. and New York Sue Bank of New York Mellon Over Foreign Exchange Fees

By ERIC DASH and PETER LATTMAN

Published: October 4, 2011

The New York attorney general and the United States attorney in Manhattan filed separate lawsuits on Tuesday against the Bank of New York Mellon, accusing it of cheating state and other pension funds nationwide out of foreign exchange fees over the last decade.

In a civil lawsuit filed in state court, the attorney general, Eric T. Schneiderman, said that the Bank of New York Mellon had consistently overcharged customers for processing foreign currency transactions. He is seeking about $2 billion, which is the ostensible ill-gotten profits that the bank generated over the last decade.

Preet S. Bharara, the United States attorney in Manhattan, filed a civil complaint in Federal District Court in Manhattan that also charges the Bank of New York Mellon with defrauding its customers in the foreign exchange markets. Whereas Mr. Schneiderman is seeking redress on behalf of state pension funds, Mr. Bharara is seeking hundreds of millions of dollars in penalties on behalf of the United States.

...

Mr. Schneiderman’s lawsuit charges that the bank guaranteed that customers would receive the most competitive or attractive rates available on any given trading day. In reality, the lawsuit says, the Bank of New York Mellon provided the opposite: the worst or nearly the worst of the rates available to the bank. Then it earned nearly $2 billion — or as much as 75 percent of its foreign exchange revenue — by pocketing the difference, the suit contends.

The New York attorney general’s action comes after similar moves by authorities in California, Florida, Massachusetts and three other states that are looking into the foreign exchange practices of the Bank of New York Mellon and one of its main competitors, the State Street Corporation. The Securities and Exchange Commission and Justice Department are also in the middle of investigations, according to corporate filings from the banks.

The inquiries began almost two years ago when a group of whistle-blowers made up of plaintiffs’ lawyers and Harry M. Markopolos, the financial investigator who first sounded the alarm about Bernard L. Madoff’s Ponzi scheme, sought out the New York state attorney general’s office to bring lawsuits against the bank.

...

It is not the first time Mr. Schneiderman has squared off against the Bank of New York Mellon. He recently moved to block a proposed $8.5 million settlement involving the bank and the Bank of America over troubled loan pools issued by Countrywide Financial. The suit accuses the Bank of New York Mellon of fraud in its role as trustee overseeing the investment pools, a claim the bank has denied.

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