The New York Attorney General added Martin Act securities fraud claims and other charges to a whistleblower complaint in taking over a suit against Bank New York Mellon. The complaint centers on claims that the bank made almost $2 billion in revenues by misrepresenting the interbank rates it obtained in foreign currency transactions for clients. The victims of the wrongful conduct include public and private pension funds and the State University of New York. The suit was originally based on the false claims act. It represents the first time the New York AG has combined securities fraud and false claims act charges.

The charges are based on the bank’s Standing Instructions program. As part of that program Bank of New York Mellon represented that it would obtain the “best rate of the day” or the “most competitive/attractive FX rates available” for its customers. In fact it did not, according to the pending complaint. Rather, the bank provided customers what the NY AG terms “the worst or nearly the worst” pricing rates available to the bank on a given day. A bank employee admitted that customers were not provided with the best execution. In fact the bank neither sought nor obtained the best execution despite its representations to its customers.

Bank of New York Mellon is alleged to have concealed its wrongful conduct from clients while profiting from it. Profits for the bank came from giving customers the worst or nearly the worst pricing and then pocketing the difference between that price and the actual market price.

Over a ten year period the bank is alleged to have made nearly $2 billion in profits from its illegal practices. The transactions from this program were about seven times as profitable for the bank as those from negotiated transactions. Thus while the Standing Instruction program accounted for only about 20% of the bank’s foreign currency exchange transactions, it yielded 65% to 75% of its foreign exchange sales revenue.

The New York AG took over and expanded the initial whistleblower suit following a lengthy investigation. The City and City Comptroller have joined the State in the action. It seeks repayment of the profits, restitution, damages and treble damages and penalties under the false claims act.

Program: The Impact of the Supreme Court’s Decision in Morrison v. National Bank of Australia on securities litigation and SEC enforcement actions. Presented by Celequ Legal Education in conjunction with West Thomson. Webcast on October 12, 2011 from 12:00 to 1:00 EST. For furtrher information please click here

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