, last week,
Bank of New York Mellon Corp.
) agreed upon a settlement over charges levied against it by
Virginia's employee pension fund. The company was accused of
charging the pension fund at the highest price of the trading
day, instead of the actual inter-bank rate at which the
currencies were originally purchased.
Terms of the agreement include payment of $1.14 million to Grant
Wilson, who was working as a foreign exchange trader at the bank
and came up with the allegations. Moreover, the settlement
proposes the termination of the lawsuit against the bank by
Additionally, BNY Mellon has struck a five-year custody deal with
the Virginia retirement system. As per the terms of the deal, the
bank will continue to offer custody, securities and
foreign-exchange services to the Virginia retirement system at
lower fees. Also, the contract includes a choice for another
This settlement is the start to a series of suits faced by BNY
Mellon after such accusations caught the eye of institutional
clients. For the past several quarters, BNY Mellon has been
facing similar litigations. Many states including New York,
Florida, California, Ohio and Massachusetts have legally charged
the company over similar allegations, such as misleading state
and public pension funds, private companies, universities and
banks via a scheme that overcharges foreign currency
BNY Mellon is not the only company that has been accused by the
states for overcharging the pension funds. Back in 2009, the
state of California had charged
State Street Corp.
) for improperly pricing foreign exchange for California pension
The Story Behind
A Fairfax County Circuit judge dismissed the foreign exchange
(FX) pricing-related allegations against BNY Mellon in May 2012.
The litigation, filed in August 2011, claimed that BNY Mellon had
failed to provide the best possible prices while conducting
foreign currency trades for Virginia pension funds. The
allegations were brought by Virginia attorney general.
The state judge in the ruling commented that Virginia cannot be
allowed to proceed with the litigation under the Virginia Fraud
Against Taxpayers Act, which necessitates the submission of a
claim for payment. The court stated that BNY Mellon had only
given the past accounting statements to Virginia and there was no
demand for money in connection with the alleged overcharging of
Moreover, in November 2011, BNY Mellon had won the partial
dismissal of the lawsuit when the Fairfax County Circuit Court
judge had dismissed two of the three charges that were filed
against the company. However, the main accusation under Virginia
Fraud Against Taxpayers Act had remained intact.
The dismissal of the lawsuit comes as a relief for BNY Mellon.
While the company is under tremendous pressure due to the rising
expenses, these lawsuits would further alleviate its costs. Also,
these FX lawsuits will force the clients to reconsider their
business ties with the company.
With the settlement of the lawsuits, BNY Mellon plans to move
forward with its business strategies. Moreover, pending lawsuits
can further trigger financial hassles while tarnishing the
company's image. Therefore, it is in the interest of the company
to resolve such matters at the earliest.
Currently, BNY Mellon retains its Zacks #3 Rank, which translates
to a short-term Hold rating. Moreover, in the absence of any
significant positive or negative catalyst, we maintain a
long-term 'Neutral' recommendation on the stock.
BANK OF NY MELL (BK): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
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