By Aruna Viswanatha
WASHINGTON-- Bank of New York Mellon Corp. agreed to pay $714
million to resolve allegations it defrauded pension funds and other
clients by overcharging them on currency transactions.
The settlements, announced on Thursday, resolve long-running
lawsuits 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 certain related private lawsuits brought by bank
customers and investigations by the Securities and Exchange
Commission and the U.S. Department of Labor.
Under the settlements, 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.
Mr. Nichols, 60 years old, doesn't have to pay any penalties
under the deal. His lawyer, Stephen Fishbein, declined comment.
While prosecutors haven't traditionally forced employees to
leave a company in order to resolve allegations of misconduct,
authorities have pushed for such departures in several recent
cases. When BNP Paribas SA last year agreed to pay $8.9 billion and
plead guilty in connection with U.S. sanctions violations, for
example, New York's banking regulator required more than one dozen
employees to leave the bank.
Bank of New York, which refuted the lawsuits' allegations since
they were first filed in 2011, admitted as part of Thursday's
agreements that it told certain clients its focus was on "securing
the best possible rates" even though the prices it actually gave
those clients were close to the worst of the day, according to
settlement documents.
"The Bank, after three years of litigation, has finally admitted
what was always clear from the evidence -- contrary to its various
representations, including a claim of 'best rates,' the bank in
fact gave clients prices at or near the worst interbank rates
reported during the trading day," Mr. Bharara said in announcing
the settlement.
In a statement, the bank said "We are pleased to put these
legacy FX matters behind us, which is in the best interest of our
company and our constituents."
The lawsuits were aided by a former bank employee, Grant Wilson,
who served as a whistleblower and helped government investigators
build their case. Mr. Wilson stands to collect some money from the
settlements. His lawyer declined comment, citing several pending
lawsuits on the issue that weren't resolved as part of Thursday's
agreements.
Mr. Wilson's role in the investigation was first revealed in a
front-page article in The Wall Street Journal in 2011.
Bank of New York Mellon agreed in 2012 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, between 2000 through 2011, 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.
Another $335 million will go to resolving private class action
lawsuits. Of the remainder, $14 million will resolve Labor
Department claims and be used to pay some of the bank's customers,
and another $30 million will resolve related claims from the
Securities and Exchange Commission.
The settlements still need to be approved by the court and the
SEC.
The lawsuits and investigations are separate from a broader
Justice Department probe into allegations that traders at top
global banks worked to manipulate foreign exchange rates to benefit
their banks' trading positions.
State Street Corp. last month also revised its fourth-quarter
earnings after increasing its reserves by $65 million to resolve
currency claims related to its custodial clients.
The lawsuit from the U.S. Attorney's office was one of the first
to draw on the 1989 Financial Institutions Reform, Recovery and
Enforcement Act, a once dormant law that allows the government to
go after fraud affecting federally-insured financial institutions.
The Justice Department has since used FIRREA to extract billions of
dollars in penalties from some of the nation's biggest banks for
their alleged roles in fueling the financial crisis.
Bank of New York Mellon and other banks unsuccessfully
challenged the government's use of FIRREA.
Write to Aruna Viswanatha at aruna.viswanatha@wsj.com
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