A Fairfax County Circuit judge dismissed the foreign exchange
(FX) pricing-related allegations against
The Bank of New York Mellon Corporation
). The allegations were brought by Virginia attorney general. This
provides a big relief to the company, as it is already entangled it
a number of similar lawsuits in other states.
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 FX trade.
The Story Behind
The litigation, filed in August 2011, claimed that BNY Mellon
had failed to provide the best possible prices while doing foreign
currency trades for Virginia pension funds. The company was accused
of charging the pension funds at the highest price of the trading
day, instead of the actual inter-bank rate at which the currencies
were originally purchased.
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.
Similar Dismissals in the Past
In March 2012, a U.S. district judge in San Francisco had
dismissed certain FX pricing-related allegations against BNY
Mellon. The accusations under the California False Claims Act were
also dismissed. However, the allegations related to the breach of
fiduciary duty, breach of contract, unfair business practices and
fraud by concealment were transferred to the state courts.
Likewise, in January 2012, BNY Mellon reached a partial
settlement with U.S. regulators regarding the FX charges that were
brought against it by the government. As per the terms of the deal,
the company will be required to reveal how the prices were
determined for these transactions. However, monetary settlement is
yet to be reached.
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 transactions.
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 dismissal of the lawsuit is obviously a relief for BNY
Mellon. While the company is under tremendous pressure due to the
rising expenses, these lawsuits would further increase its costs.
Also, these FX lawsuits will force the clients to reconsider their
business ties with the company.
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 Report
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