Massachusetts probing forex at trust banks

BOSTON (Reuters) - Two top Massachusetts officials have begun reviewing foreign exchange trading operations involving State Street Corp and Bank of New York Mellon,, making it the latest state to scrutinize trust banks that once counted on the area for strong profits.

First, a spokesman for Massachusetts Secretary of State William Galvin said on Friday his office is reviewing State Street and BNY Mellon in connection with foreign-exchange operations. He declined to give more details.

Separately, a top state pension fund official said it plans to hire a consultant to review forex trades by its outside asset managers in recent years. The review was prompted by scrutiny of forex activities in other states, said Michael Trotsky, executive director of the board that oversees the state's $50 billion pension fund.

Bank of New York Mellon has been the agency's custodian since 1999, while a State Street unit serves as an equity index manager and uses its own brokers and BNY Mellon to execute forex trades on the fund's behalf, Trotsky said.

"In light of all the other probes and investigations under way, we wanted to make sure we were fairly treated," Trotsky said in a telephone interview.

Several states have already taken the stronger step of joining lawsuits against State Street and BNY Mellon over forex services provided to state pension funds. The banks have denied wrongdoing.

A spokesman for BNY Mellon declined to comment. A State Street spokeswoman declined to comment on the review by Galvin, and said she could not immediately respond to Trotsky's comments.

Traditionally, a very profitable area for the banks, forex has come under scrutiny following whistle-blower complaints. In various lawsuits, the banks are accused of inflating their profits by charging customers artificially higher prices than what foreign exchange trades actually cost.

The Massachusetts pension fund is somewhat unusual in using outside asset managers to handle its investments, who are free to use either the state custodian BNY Mellon or other companies for foreign exchange transactions.

On Monday, a spokeswoman for the North Carolina treasurer's office said it was reviewing forex work by custodians, which would include State Street and BNY Mellon.

Between them, the two banks already face legal actions by California, Florida, Virginia and public pension funds.

(Reporting by Ross Kerber; editing by John Wallace, Bernard Orr)