(COLUMBUS, Ohio)—Ohio Attorney General Mike DeWine today announced the $335 million settlement, subject to court approval, of a class-action lawsuit against The Bank of New York Mellon (“BNYM”) over claims that it unlawfully overcharged pension funds and other banking customers for foreign currency exchange (“FX”) trades. Combined with settlements with other regulatory and government agencies, the total gross compensation to BNYM’s customers will be $504 million. BNYM has agreed to pay an additional $210 million in penalties to the United States Department of Justice (“DOJ”) and other government agencies.
“This settlement is an extraordinary outcome to litigation that was extremely hard-fought for more than four years,” said Ohio Attorney General Mike DeWine. “BNY Mellon has altered its practices, and its eligible clients will see substantial relief from the proceeds generated by the global resolution.”
BNYM acts as a “custodian,” or holder, for investment accounts that pension funds and other institutional clients use in order to earn money for their beneficiaries. When a trade is done for a pension fund in a foreign security, a corresponding FX trade is necessary in order to convert U.S. dollars to the relevant foreign currency (or vice-versa) to complete the securities trade. The same is true when dividends are earned on a foreign stock that a pension fund already owns – an FX trade needs to be done to repatriate the foreign security into U.S. dollars. Under “standing instructions,” a pension fund (or its investment manager) may direct a custodial bank (such as BNYM) to conduct such FX trades automatically and on an as-needed basis.
The litigation alleged that, for more than decade, and contrary to its legal duties and representations, BNYM deliberately charged its custodial clients FX conversion rates under “standing instructions” that were at or near the worst price of the day or applicable trading session. In so doing, the litigation alleged, BNYM took risk-free profits by pocketing the difference between prevailing market FX rates at the time of the trades, and the rates it charged to customers.
“When a bank marks up prices in this manner, it directly impacts the bottom line of our pension systems, as well as retirees and beneficiaries,” DeWine said.
Two Ohio pension funds—the Ohio Police & Fire Pension Fund (OP&F) and the School Employees Retirement System of Ohio (SERS)—were among the four pension funds who led the class litigation. OP&F and SERS, together, stand to recover approximately $5 million as a resultof the global resolution. There are over 1,200 custodial clients of BNYM who comprise the proposed settlement class.
“The outcome of this case ultimately benefits our state’s active and retired public safety officers. We welcome the transparency in foreign exchange transactions that will result from the settlement that has been reached and we appreciate the work of the Ohio Attorney General, who took on this case at our request,” said OP&F Executive Director John J. Gallagher, Jr.
“Protecting the interests of our members and employers is our top priority and we believe this is a very good settlement for the people we serve,” said Lisa J. Morris, Executive Director of School Employees Retirement System of Ohio. “We would like to thank Attorney General DeWine for pursuing this important business practice reform.”
BNYM, headquartered in New York, is one of the largest custodial banks in the world. In 2014, it held $28.5 trillion in custody for pension funds and other custodial clients.
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