The Bank of New York Mellon Corporation (BK - Free Report) has been accused by the states of Virginia and Florida of failing to provide them with the best possible prices while making foreign currency trades for their respective state pension funds. The two states are acting on 2009 whistleblower lawsuits filed by FX Analytics against the company.
The two states have filed a lawsuit against BNY Mellon for overcharging the pension funds – Florida Retirement System Trust Fund and Virginia Retirement System – on foreign currency transactions.
As of June 30, 2011, BNY Mellon held about $128.9 million worth of funds in Florida Retirement System Trust Fund, while as of March 31, 2011, the company held nearly $54.3 million in Virginia Retirement System.
Florida alleged that BNY Mellon violated the False Claims Act by submitting fake claims for payments and fraudulent documents in support of these claims. Further, the company is also accused of using forged records to evade payment obligations to the state. In its lawsuit, Florida is seeking $11,000 in penalties for each violation of the False Claims Act.
Similarly, Virginia, in its complaint filed with the court, accused BNY Mellon of charging the pension fund with the highest price of the trading day instead of the actual interbank rate at which the currencies were actually purchased. The state is seeking a total of nearly $931.6 million (nearly $120 million in damages and $11,000 in fines for each of 73,784 falsely reported executed trades) from the company as compensation.
BNY Mellon is not the only company that has been accused by the states of overcharging the pension funds. In 2009, the state of California had alleged that State Street Corp. (STT - Free Report) had improperly priced foreign exchange for California pension funds.
However, BNY Mellon stated that these cases are needless and based on flawed understanding and working of the foreign currency markets. The company also stated that it would fight these lawsuits and win them on the basis of facts and law.
BNY Mellon currently retains its Zacks #5 Rank, which translates to a short-term Strong Sell rating. However, in the absence of any significant positive or negative catalyst, we maintain a long-term Neutral recommendation on the stock.