The New York Attorney General added Martin Act securities
fraud claims and other charges to a whistleblower complaint in taking over a
suit against Bank of New York Mellon. The complaint centers on claims that the
bank made almost $2 billion in revenues by misrepresenting the interbank rates
it obtained in foreign currency transactions for clients. The victims of the
wrongful conduct include public and private pension funds and the State
University of New York. The suit was originally based on the false claims act.
It represents the first time the New York AG has combined securities fraud and
false claims act charges.
The charges are based on the bank's Standing Instructions
program. As part of that program Bank of New York Mellon represented that it
would obtain the "best rate of the day" or the "most competitive/attractive FX
rates available" for its customers. In fact it did not, according to the
pending complaint. Rather, the bank provided customers what the NY AG terms "the
worst or nearly the worst" pricing rates available to the bank on a given day.
A bank employee admitted that customers were not provided with the best
execution. In fact the bank neither sought nor obtained the best execution
despite its representations to its customers.
Bank of New York Mellon is alleged to have concealed its
wrongful conduct from clients while profiting from it. Profits for the bank
came from giving customers the worst or nearly the worst pricing and then
pocketing the difference between that price and the actual market price.
Over a ten year period the bank is alleged to have made
nearly $2 billion in profits from its illegal practices. The transactions from
this program were about seven times as profitable for the bank as those from
negotiated transactions. Thus while the Standing Instruction program accounted
for only about 20% of the bank's foreign currency exchange transactions, it
yielded 65% to 75% of its foreign exchange sales revenue.
The New York AG took over and expanded the initial
whistleblower suit following a lengthy investigation. The City and City
Comptroller have joined the State in the action. It seeks repayment of the
profits, restitution, damages and treble damages and penalties under the false
Program: The Impact of the
Supreme Court's Decision in Morrison v. National Bank of Australia on securities
litigation and SEC enforcement actions. Presented by Celequ Legal Education in
conjunction with West Thomson. Webcast on October 12, 2011 from 12:00 to 1:00
EST. For furtrher information please click here
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
For more information about LexisNexis
products and solutions connect with us through our corporate site.