Massachusetts accuses BNY Mellon over FX charges

By Svea Herbst-Bayliss

BOSTON (Reuters) – Massachusetts state officials accused Bank of New York Mellon Corp of overcharging teachers, police officers and bus drivers by at least $20 million on currency trades for the state’s pension fund.

State Treasurer Steven Grossman released a report on Monday that detailed currency dealings over the last four years, and said transactions dating back to 2000 were being examined.

“We will take every step available to recover lost funds and prevent this from happening in the future,” Grossman said at a news conference. “We are not going to allow any bank to profit and profiteer on the backs of the pensioners.”

A spokesman for Bank of New York Mellon said the bank did not have an immediate comment.

Grossman said the fund is looking at all options to get its money back, and would meet this week with state Attorney General Martha Coakley to discuss a strategy.

The pension fund’s officers have not yet met with Mellon officials, he said, adding that the alleged practices post a ”huge headline risk” to large financial institutions. “This has been a rampant practice of bad behavior,” Grossman said.

Massachusetts has the right to pull its business from Mellon with 30 days notice, Grossman added.

Grossman and Michael Trotsky, executive director for the state’s $50 billion pension fund, discussed the review of currency trading which was conducted by independent consultant FX Transparency of Framingham, Massachusetts.

The report found that BNY Mellon charged the fund an average of nearly 31 basis points for foreign exchange transactions, while industry fees averaged 4 basis points.

Massachusetts is one of a handful of states investigating whether companies like BNY Mellon and others cheated public pension funds on currency transactions by failing to charge the funds the rates that the banks paid, and instead forcing them to pay the day’s highest rates and pocketing the difference.

BNY Mellon has been sued by Florida and Virginia, which charged that the bank failed to give them lowest prices.

Pension funds, like other big investors who trade in foreign stocks, rely on custody banks like BNY Mellon to exchange dollars for foreign currencies so they may make their purchases.

For many trust banks, currency trading has become a lucrative business.

BNY Mellon has been working with the Massachusetts fund for at least a decade.

In late afternoon trade, BNY Mellon shares were up 1.4 percent to $26.65. (Reporting by Svea Herbst-Bayliss; Editing by Lisa Von Ahn, Gerald E. McCormick and Tim Dobbyn)