--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 firstname.lastname@example.org