The state and city of New York have sued BNY Mellon for using "fraudulent rates" to collect $2 billion in fees from public and private pension funds in foreign currency transactions.

New York's attorney general, Eric T. Schneiderman, along with the City of New York, is seeking to recover the profits BNY Mellon "illegally earned by deceiving its customers,'' which included the New York City Employee Retirement System (NYCERS) and the State University of New York.

The plaintiffs are trying to force BNY Mellon to return its profits and potentially face triple damages as well as penalties of $12,000 per violation.

Here is the complaint.

The state and city say "BNY Mellon consistently misrepresented to customers the rates it would give foreign currency transactions. Instead of providing the best interbank rates– as it promised – BNY Mellon gave the worst or nearly the worst rates of the trading day.''

Bank of New York Mellon had not replied to a request for comment when this story was posted.

Bank of New York Mellon, one of the leading providers of securities services, garnered nearly $2 billion from these trades, the plaintiffs said.

“This landmark case uncovered a fraud committed against both government and private pension funds,” Executive Deputy Attorney General Karla G. Sanchez said.

New York City pension funds were "among the most impacted of BNY Mellon’s clients and lost tens of millions of dollars as a result of its fraudulent rates,'' the city and state said.

In addition to NYCERS, those funds include the Teachers Retirement System of the City of New York, the New York City Police Pension Fund, Subchapter 2, and the New York City Fire Department Pension Fund, Subchapter 2.

BNY Mellon claimed to monitor exchanges agents completed “to ensure that the best rate is attained for our clients,” and advertised that the Bank netted buy and sell orders for the benefit of clients and that Standing Instructions execution was “free of charge,'' the plaintiffs said.

Far from giving clients who used the Standing Instructions program the “best rate of the day,” or “best execution,” the prosecutors said BNY Mellon provided the opposite: the worst or nearly the worst of the pricing rates available to the Bank that day.

The case began when a whistleblower filed a complaint with the Attorney General’s office.  The whistleblower action was originally filed by FX Analytics in 2009. 

-- This article first appeared on Securities Technology Monitor.