By Christian Berthelsen
Bank of New York Mellon Corp. (BK), rocked by allegations that
it charged pension funds and other institutional clients hidden
mark-ups on currency transactions, announced Thursday it has struck
a five-year custody deal with one of the state retirement systems
that had been suing it over its foreign exchange practices.
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, according to a person familiar
with the details who spoke on condition of anonymity.
Virginia's lawsuit against Bank of New York 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
about how and whether to refile the case.
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 U.S. Justice Department has alleged 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.
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 investment funds managed by Prudential
Financial Inc. (PRU) about half the $28 million it was alleged to
have made from the insurer's trades during a five-year period using
the tactic. The source familiar with the new Virginia deal said
repayment for past trades wasn't part of the arrangement.
Write to Christian Berthelsen at
christian.berthelsen@dowjones.com
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