The Bank of New York Mellon said late Tuesday that it is a victim of ‘prosecutorial overreach,’ at least in the case of the $2 billion lawsuit filed against it by New York state attorney general Eric T. Schneiderman.

"The claims in this lawsuit are flat out wrong, both on the law and on the facts,’’ the New York-based securities services firm said. “They reflect a fundamental misunderstanding by the Attorney General and his staff of the role of custodian banks and the operation of institutional FX markets.’’

The state of New York along with the City of New York early Tuesday evening filed suit against BNY Mellon seeking to recover profits "illegally earned by deceiving its customers,'' which included the New York City Employee Retirement System (NYCERS) and the State University of New York.

BNY Mellon is accused of using "fraudulent rates" in collecting $2 billion of fees from public and private pension funds in foreign currency transactions.

Within hours, a civil suit on similar grounds was filed in Manhattan by the U.S. Justice Department. That suit also alleges BNY Mellon abused state and public pension funds, private companies, universities and banks by overcharging for currency exchanges.

Here is the New York state complaint.

The state and city say "BNY Mellon consistently misrepresented to customers the rates it would give foreign currency transactions. Instead of providing the best interbank rates– as it promised – BNY Mellon gave the worst or nearly the worst rates of the trading day.''

BNY Mellon said it would defend itself vigorously against the charges, which involve standing instructions for currency exchanges.

“The Attorney General's lawsuit ignores the benefits our standing instruction service provides to our custody clients and their investment managers, who freely choose to use it,’’ BNY Mellon said. “The Attorney General is in essence attacking BNY Mellon for operating a profitable business, suggesting that we should provide our valuable FX services at cost – something no rational commercial institution would do. “

BNY Mellon said the Attorney General “deliberately ignores that BNY Mellon acts as principal in standing instruction transactions.’’

In these transactions, BNY Mellon buys currencies from and sells currencies to institutions at 'wholesale' prices that are ‘‘significantly better than they could obtain from other providers.’’

Its U.S. trading desks publish a guaranteed range of prices each morning, and “clients and investment managers can choose to opt out of the standing instruction program every day if they don't like the range of rates we are guaranteeing,’’ BNY Mellon said.

-- This article first appeared on Securities Technology Monitor.



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