In a recent development, New York state judge ruled that the lawsuit against The Bank of New York Mellon Corp. (BK - Free Report) filed by New York Attorney General should proceed. The New York Attorney General had accused BNY Mellon of deceiving its customers by overcharging them for foreign exchange (FX) transactions.
The litigation, filed in 2011 by New York Attorney General Eric Schneiderman, charged BNY Mellon of fraudulent representation wherein the bank did not provide the best possible prices to its customers including New York City pension funds, while conducting foreign currency trades. Moreover, the Attorney General alleged that the bank earned nearly $2 billon between 2001 and 2011 from this malpractice.
Over the past two years, several lawsuits have been filed against BNY Mellon over FX transactions. Many states including New York, Florida, California, Virginia, Ohio and Massachusetts have filed lawsuits against the company over similar allegations, such as misleading state and public pension funds, private companies, universities and banks via a scheme that overcharges foreign currency transactions.
Some of the foreign exchange (FX) pricing-related allegations against BNY Mellon have been dismissed whereas some others have been allowed to continue.
BNY Mellon is not the only company that has been accused by the states for overcharging the pension funds. Back in 2009, the state of California had charged State Street Corporation (STT - Free Report) for improperly pricing of foreign exchange for California pension funds.
Last month, the U.S. District Judge overthrew foreign exchange (FX) pricing-related allegations against JPMorgan Chase & Co. (JPM - Free Report) . The bank was accused of breaching its fiduciary duty to its custodial clients by charging concealed and enormous mark-ups on trading currencies.
The contract between BNY Mellon and New York City pension funds is on the verge of expiration. Alongside, The New York City pension fund intends to hire State Street as its new custodian. This would result in BNY Mellon losing it customers, thereby reducing its client base. Moreover, the litigation cost involved is expected to elevate BNY Mellon's overall expenses.
BNY Mellon currently carries a Zacks Rank #3 (Hold). Among others, BankUnited, Inc. (BKU - Free Report) is a better performing bank with a Zacks Rank #1 (Strong Buy).