According to the Wall Street Journal, the lawsuits allege the bank defrauded or misled state and public pension funds, private companies, universities, and banks in a decade-long scheme of overcharging for foreign exchange. The civil case alleges violations of a federal law—wire and mail fraud—in claiming BNY Mellon defrauded federally insured banks.
The Justice Department suit is based on a 1989 law passed in the wake of the savings-and-loan crisis to shore up the U.S. banking system. In the suit, Manhattan U.S. Attorney Preet Bharara said he was authorized to sue BNY Mellon under federal law because the bank allegedly violated wire and mail fraud statutes when it falsely charged banks for currency transactions. The suit is seeking “hundreds of millions of dollars in civil penalties,” states the Wall Street Journal.
In the state-court suit, New York Attorney General Eric Schneiderman is wielding a powerful state law known as the Martin Act, the Journal said. By using the 1921 law, prosecutors don’t have to prove intent to defraud, in contrast to federal securities laws. The lawsuit includes an exhibit of more 130 public and private entities, including YMCA of Los Angeles, the state of New Mexico and Walt Disney Co. The exhibit alleges the companies were provided “misleading” descriptions of how BNY Mellon executed currency transactions.
Schneiderman says he is seeking nearly $2 billion—an amount he says the bank improperly generated in profits in the alleged scheme.
In response to the civil lawsuit, BNY Mellon released the following statement: “The claims in this lawsuit are flat out wrong, both on the law and on the facts. They reflect a fundamental misunderstanding by the Attorney General and his staff of the role of custodian banks and the operation of institutional FX markets.
“All of our FX alternatives offer our clients valuable services at a competitive price in a transparent market. The Attorney General’s lawsuit ignores the benefits our standing instruction service provides to our custody clients and their investment managers, who freely choose to use it. The Attorney General is in essence attacking BNY Mellon for operating a profitable business, suggesting that we should provide our valuable FX services at cost – something no rational commercial institution would do.
“This action is prosecutorial overreach that ill serves New York, New Yorkers and the pension funds whose interests the Attorney General purports to advance. While we recognize that capitulating to the Office’s demands might avoid some nasty headlines, we refuse to be coerced into admitting to and paying for wrongdoing that does not exist.”
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