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Bank Accused of Stealing Millions|in Fees From California Pension Funds

SACRAMENTO (CN) - State Street Bank and Trust swindled millions of dollars from California's two largest public pension funds, CalPERS and CalSTRS, by illegally overcharging for foreign currency trades, Attorney General Edmund Brown Jr. claims in Superior Court. He seeks to recover more than $200 million in alleged overcharges and penalties.

Since 2001, Boston-based State Street dramatically altered prices on foreign currency trades made for CalPERS and CalSTRS, according to the complaint. The bank was supposed to abide by the "interbank rate," which sets the price at which major banks buy and sell currency.

Instead, State Street consistently charged the pension funds the highest or near-highest rate of the day for foreign currency trades, Brown claims.

"Over a period of eight years, State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California's public pension funds," Brown said in a press statement. "This is just the latest example of how clever financial traders violate laws and rip off the public trust."

Brown says the pension funds were overcharged by more than $56.6 million over eight years.

State Street allegedly hid the activity by entering false exchange rates into its electronic trading databases, which automatically debited the pension funds' accounts. State Street also gave the funds statements reflecting bogus rates and failed to provide time-stamp data that would reveal exactly when the trades were executed, the complaint states.

The lawsuit, filed under seal by Associates Against FX Insider Trading, was unsealed on Tuesday.

Brown says internal emails also gave away the fraudulent scheme. In an email discussing inquiries by the funds, one bank executive allegedly told other executives, "if providing execution costs will give [CalPERS] any insight into how much we make off of FX transactions, I would be shocked if [a State Street V.P.] or anyone would agree to reveal the information."

Brown demands an injunction and more than $200 million in damages, penalties and restitution for alleged violations of the False Claims Act, conspiracy, and violations of the Business and Professions Code.

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