New York and federal authorities reached a $714 million settlement Thursday with Bank of New York Mellon in lawsuits alleging the bank fraudulently represented rates for client currency transactions for a decade.
Lawsuits filed in 2011 said BNY Mellon misrepresented rates it would give in currency exchanges, providing clients nearly the worst rates of the trading day while promising the best, obtaining the best rates for itself and keeping the difference.
New York Attorney General Eric Schneiderman and U.S. Attorney for the Southern District of New York Preet Bharara said their joint effort showed the bank misled customers and breached their trust. The bank has agreed to terminate certain executives involved, they said.
“Investors count on financial institutions to tell them the truth about how their investments are being managed,” Schneiderman said. “But Bank of New York Mellon misled customers and traded at their expense.”
Bharara said: “The bank, after three years of litigation, has finally admitted what was always clear from the evidence – contrary to its various representations, including a claim of ‘best rates,’ the bank in fact gave clients prices at or near the worst interbank rates reported during the trading day. The bank repeatedly deceived its customers and is paying a heavy penalty for it.”
The bank said the agreement fully resolves lawsuits and enforcement proceedings concerning its standing instructions on foreign-exchange services for custodial clients before early 2012.
“We are pleased to put these legacy FX matters behind us, which is in the best interest of our company and our constituents,” the bank said in a prepared statement. “We continue to improve our product offerings to ensure they are meeting client demand and positioning clients to succeed in an increasingly complex financial environment.”
The investigation began with a 2009 whistleblower complaint. Clients included public pension funds and nonprofits.
“The Bank was generally buying low from, and selling high to, its own clients,” according to a statement of facts attached to the court settlement. “The bank recorded the difference or ‘spread’ between the rates it gave clients and the interbank market price at the time the … transactions were priced as ‘sales margin.’ “