* BNY Mellon accused of overcharging clients
* Judge allows claims under S&L crisis-era law to proceed
* Similar cases pending against Bank of America, Wells Fargo
By Nate Raymond and Jonathan Stempel
April 24 A federal judge said on Wednesday the
U.S. government can proceed with a lawsuit accusing Bank of New
York Mellon Corp of overcharging clients for trading
currencies, a case brought under a rarely-used financial fraud
While dismissing some of the fraud claims, U.S. District
Judge Lewis Kaplan in Manhattan said the complaint "generally
suffices" to let the government pursue its main claim, that the
bank fraudulently misrepresented that it would provide "best
execution" to various trading clients.
The ruling marked a significant victory for the U.S.
Department of Justice, which had sought to use a powerful law
adopted in the wake of the savings and loan scandals of the
1980s to bring civil fraud cases against Wall Street banks.
The law, the Financial Institutional Reform, Recovery and
Enforcement Act of 1989 (FIRREA), provides for a low burden of
proof, strong subpoena power and a 10-year statute of
limitations. It had not been applied much until recently.
The Justice Department has asserted the law in
mortgage-related cases pending against Bank of America Corp
and Wells Fargo & Co. Those banks have sought to
dismiss the claims filed under the law on grounds similar to BNY
Under the statute, the government may pursue civil penalties
against anyone who commits a fraud that is "affecting a
federally insured financial institution." BNY Mellon contended
the law shouldn't apply when the only financial institution
affected was itself.
In an 81-page opinion, Kaplan rejected that argument, saying
that where a financial institution's fraud harms itself in the
process, "it is entirely consistent with the text and purposes
of the statute to hold the institution liable for its conduct."
"If anything, the urgency may even be greater when the fraud
allegedly pervades an institution that the government has
backstopped," he wrote.
Adam Lurie, a former senior official at the Justice
Department, now at Cadwalader Wickersham & Taft, said the ruling
will make the Justice Department more confident in pursuing
cases under FIRREA.
"However, they must be mindful that the decision is still
subject to review at the appellate level, and the issue is still
unsettled at that level," he added.
Filed in 2011, the Justice Department's lawsuit accuses BNY
Mellon of scheming from at least 2000 to defraud custodial
customers of its foreign exchange services.
The lawsuit claims BNY Mellon misled clients about how it
arrived at its foreign currency exchange rates for certain
BNY Mellon entered into a partial settlement in January
2012, agreeing to change disclosures regarding its foreign
The damages claims continued. The lawsuit seeks an
unspecified amount of penalties.
On the merits of the case, Kaplan said on Wednesday the
complaint sufficiently alleged its principal claims that it took
steps to actively mislead clients about how foreign currency
trades were priced.
He also said the complaint sufficiently alleged fraud claims
against an individual defendant in the case, David Nichols, the
head of products management at BNY Mellon.
Stephen Fishbein, a lawyer for Nichols at Shearman &
Sterling, declined comment.
Kevin Heine, a spokesman for BNY Mellon, said the bank was
"pleased that the court dismissed a number of the claims
advanced by the government."
The judge dismissed some claims in the lawsuit to the extent
it alleged BNY Mellon made misrepresentations by saying it
minimizes costs or provides the "best rate of the day," among
"We look forward to addressing the remaining claims before
the court," Heine said.
A spokeswoman for Manhattan U.S. Attorney Preet Bharara,
whose office filed the case, declined comment.
The case is United States v. Bank of New York Mellon, U.S.
District Court, Southern District of New York, No. 11-06969.