(CN) – Bank of New York Mellon will fork over $714 million to settle charges it promised the best foreign exchange rates but instead gave the worst price, New York’s top cop announced Thursday.
The agreement settles a number of cases brought by New York Attorney General Eric Schneiderman and the U.S. Attorney’s Office over the bank’s fraudulent practices.
Schneiderman and Manhattan U.S. Attorney Preet Bharara said the bank systematically misrepresented how it handled customers’ foreign exchange transactions by claiming it used an automated system to lock in the best rates and then execute the trades for the customers.
Instead, BNYM got the best rates, gave its customers the worst or nearly worst rates, and kept the difference for itself – and bank executives knew it, the attorneys said.
Some of the bank’s affected customers include public pension funds, states, colleges, charities and foundations.
A whistleblower uncovered the practice in 2009, filing a complaint with the Attorney General’s Office under the New York False Claims Act.
In addition to the $714 million settlement, BNYM agreed to fire the executives involved and reform its practices. It also agreed to waive tax deductibility on the settlement money.
“Investors count on financial institutions to tell them the truth about how their investments are being managed. But Bank of New York Mellon misled customers and traded at their expense,” Schneiderman said. “Today’s settlement shows that institutions and individuals responsible for defrauding investors will be held accountable and face serious consequences for their wrongdoing.”
Bharara pointed to the harm done to public institutions by the bank.
“The Bank of New York Mellon’s custody clients, many of whom are public pension funds and nonprofit organizations, trusted the bank to be honest about the financial services it was providing and to deal with them fairly,” he said. “BNYM and its executives, motivated by outsized profits and bonuses, breached this trust and repeatedly misled clients to believe that the pricing they were getting on foreign exchange was far better than it actually was. The bank, after three years of litigation, has finally admitted what was always clear from the evidence – contrary to its various representations, including a claim of ‘best rates,’ the bank in fact gave clients prices at or near the worst interbank rates reported during the trading day.
“The bank repeatedly deceived its customers and is paying a heavy penalty for it,” he added.
Schneiderman said New York’s share of the penalty – $167.5 million – will go to compensate the victims of BNYM’s fraud.
The New York State Deferred Compensation Plan and SUNY will be fully compensated for their losses, he added.
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