Bank of New York Expected to Pay $714 Million to Resolve Currency Suits -- 2nd Update

By Aruna Viswanatha 

WASHINGTON-- Bank of New York Mellon Corp. will pay $714 million to resolve allegations it defrauded pension funds and other clients by overcharging them on currency transactions, capping long-running federal and state lawsuits over the issue.

The settlements, announced Thursday, resolve cases from Manhattan U.S. Attorney Preet Bharara and New York Attorney General Eric Schneiderman that accused the custody bank of giving some clients worse prices on foreign currency trades than they had been promised.

It also ends related private cases and investigations by the Securities and Exchange Commission and the U.S. Department of Labor, according to Mr. Schneiderman's office.

Under the deal with New York, the bank agreed to fire "certain employees involved in the conduct," including David Nichols, a managing director and head of products management who was also charged in the federal lawsuit.

The bank admitted it told certain clients its focus was on "securing the best possible rates for our clients," even though it gave those clients prices that were at or near the worst interbank rates reported during the trading day or session, according to settlement documents.

The bank has strongly denied the allegations since the lawsuits were filed in 2011, agreeing in 2012 only to make changes to pricing disclosures. Last month the bank said it would adjust its fourth-quarter results to include a $598 million litigation expense as it neared resolution of foreign-exchange and other matters.

The cases revolved around the bank's foreign exchange "standing instruction" program, under which pension funds and other clients allow the bank unilaterally to handle their foreign-exchange transactions.

As a custody bank, BNY Mellon safeguards about $28.5 trillion in assets for money managers, companies and other clients, performing administrative functions on behalf of other banks and corporations. It is also an investment manager, with $1.7 trillion of assets under management.

The $714 million settlement will be parceled out to various parties, including $335 million split between the U.S. Justice Department and New York State. Mr. Schneiderman's office said its portion would largely go to compensating customers of the bank who were victims of the pricing strategy, including two state agencies--the New York State Deferred Compensation Plan and the State University of New York.

Write to Aruna Viswanatha at [e-mail]

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