Bank of New York Mellon faces separate lawsuits filed Thursday in Florida and Virginia, accusing it of breaching its fiduciary duty by overcharging those states' defined benefit plans millions of dollars for foreign exchange fees.
Florida Attorney General Pamela Jo Bondi — also one of three trustees of the Florida State Board of Administration, Tallahassee, which oversees the $129.6 billion Florida Retirement System — filed suit in Leon County Circuit Court in Tallahassee against BNY Mellon, the global master custodian for all the funds overseen by the state board. Judge Terry Lewis is presiding in the case.
Virginia Attorney General Kenneth T. Cuccinelli II filed a suit in state court in Fairfax against BNY Mellon, which serves as global custodian for the $54.3 billion Virginia Retirement System.
The Florida lawsuit, which does not quantify the overcharging, seeks to recover triple damages from BNY Mellon. “Due to BNY Mellon's misconduct, the state will ultimately have to provide millions of additional dollars” to the Florida system, the suit said.
The Virginia lawsuit claims an estimated $40 million in damages and seeks to recover a total of $811.6 million in civil penalties. “We will do everything we can to get those overcharges returned to the commonwealth's retirement funds and to the employees and retirees of the commonwealth and the localities,” Mr. Cuccinelli said in a prepared statement.
Both suits allege BNY Mellon used false prices for foreign exchange.
BNY Mellon “added hidden spreads, including markups and markdowns, to these foreign exchange trades rather than pricing the trades at the exchange rates at which it actually executed the transactions,” according to the Florida suit.
As a result, the Florida suit alleges, the actions caused the Florida plan “to pay far more than it should have for buys and receive much less than it should have for sells.”
The board of the Florida plan began a search earlier this year for a global custodian for the funds it oversees; in May, Bank of New York Mellon along with J.P. Morgan Chase and State Street Bank & Trust, were named finalists.
The FSBA has not made a decision on hiring, although it is possible it could in September, said John Kuczwanski, the board's communications manager. He said board officials have no comment on the lawsuit.
In February, Ms. Bondi filed a notice seeking to take over the lawsuit against BNY Mellon initially filed by FX Analytics Nov. 9, 2009, on behalf of the FSBA.
“The lawsuits filed by the Virginia and Florida attorneys general are unwarranted and reflect a flawed understanding of foreign currency markets,” BNY Mellon spokesman Kevin Heine said in an e-mailed response to questions. “We will fight these claims in court and are confident we will prevail. We value our client relationships and are always prepared to respond to our clients' questions about the pricing of our services. While our first choice is always an amicable resolution, we refuse to be coerced into paying for and admitting to wrongdoing where none exists.”