--BNY Mellon, Virginia reach deal on currency-pricing
litigation
--Lawsuit to be permanently dismissed
--Whistleblower payment is first in large field of lawsuits
(Adds more context, details on whistleblower )
By Christian Berthelsen
Bank of New York Mellon Corp. (BK) has reached an agreement over
accusations it charged hidden mark-ups on currency transactions to
Virginia's employee pension fund, in a deal that will also involve
a $1.1 million whistleblower payment, according to a source
familiar with the matter.
As part of the agreement, Virginia will permanently drop its
lawsuit against Bank of New York, and the bank will offer some
compromises on fees going forward under a new custodial deal,
according to sources familiar with the details who spoke on
condition of anonymity. A proposed order either already has or is
about to be filed with the court seeking permanent dismissal of the
case, one of the sources said.
The payment to the whistleblower is the first of its kind in a
series of suits that mushroomed after institutional clients of the
bank learned of the accusations, raising the possibility that there
may be more if other lawsuits and investigations are settled in
similar fashion. Pension funds in Virginia and several other states
and municipalities have accused Bank of New York and fellow
custodial bank State Street Corp. (STT) of deceiving them by using
a least-favorable high or low range to price their currency trades,
and pocketing the difference.
The whistleblower, Grant Wilson, was a Japanese yen trader on
one of BNY Mellon's foreign exchange desks in Pittsburgh, and for
the last two of his 10 years with the bank collected information
and documents that aided investigations by the government and a
plaintiff legal group, FX Analytics, into the alleged practices.
The information he provided detailed how the alleged scheme worked
and how much the bank made from the practice.
His actions were among the first under a fledgling initiative by
the Securities and Exchange Commission to cultivate whistleblowers
as a means of detecting financial wrongdoing. The SEC program,
launched under the Dodd-Frank finacial overhaul, offers government
rewards to whistleblowers of 10% to 30% of the proceeds in cases
where penalties exceed $1 million. Tips under the program have
surged since it first began.
The payment to FX Analytics and Wilson in the Virginia matter
comes from the state of Virginia, according to one source familiar
with the matter. Spokespeople for the attorney general's office did
not return mulitple e-mails and telephone calls seeking
comment.
Virginia's suit was dismissed in May, after a judge found it
couldn't properly pursue the case against the bank using the False
Claims Act clauses it was filed under. Since then, the state has
said it is weighing its options.
The U.S. Justice Department has alleged in its own suit that
Bank of New York overcharged clients for currency trades for at
least a decade, receiving more than $1.5 billion from the tactic
during one four-year period. The bank has denied wrongdoing.
BNY Mellon announced Thursday it has struck a five-year custody
deal with the Virginia retirement system. Under the agreement with
Virginia, BNY Mellon said it will continue to provide custody,
securities and foreign-exchange services to the Virginia Retirement
System under the terms of the contract, which also contains an
option for another five-year renewal.
The Justice Department's lawsuit said Bank of New York has taken
steps to appease angry clients outside the court system, including
by agreeing to repay to investment funds managed by Prudential
Financial Inc. (PRU) about half the $28 million it was alleged to
have improperly earned from the insurer's trades over five years.
The source familiar with the new Virginia deal said repayment for
past trades wasn't part of the arrangement.
Write to Christian Berthelsen at
christian.berthelsen@dowjones.com