* Banks accused of overcharging clients on currency trades
* U.S. government pursuing lawsuit against Bank of NY Mellon
By Jonathan Stempel
NEW YORK, July 3 JPMorgan Chase & Co and
officials at Bank of New York Mellon Corp on Wednesday
won the dismissal of lawsuits accusing them of overcharging
clients for trading currencies.
U.S. District Judge Denise Cote in Manhattan threw out a
lawsuit that accused the largest U.S. bank by assets of
breaching a fiduciary duty to custodial clients by charging
"hidden and excessive mark-ups" on currency trades.
Hours earlier, Cote's colleague, Lewis Kaplan, made public
his dismissal of a lawsuit by Bank of New York Mellon
shareholders accusing bank officials of ignoring "red flags" or
knowing that trades were being processed at the worst or
near-worst prices of the day. Chief Executive Gerald Hassell was
among the defendants in that case.
The JPMorgan lawsuit was led by the Louisiana Municipal
Police Employees' Retirement System, and sought class-action
status on behalf of pension fund custodial clients.
Meanwhile, the Bank of New York Mellon lawsuit was led by
the Iron Workers Mid-South Pension Fund and by California
resident Marilyn Clark, and sought to force executives and
directors to reimburse the bank for damages.
Lawyers for the plaintiffs in both cases did not immediately
respond to requests for comment.
The lawsuits are among several in the last few years where
federal and state regulators, customers and shareholders have
accused custodial banks of defrauding clients of millions of
dollars through overcharges on foreign exchange trades.
Custodial banks provide back-office and other services
including accounting, asset valuations, currency trading,
portfolio servicing and stock lending. Bank of New York Mellon
is the world's largest custodial bank, while JPMorgan is the
In her decision, Cote rejected allegations that the
underlying JPMorgan custodial agreement obligated the bank to
process trades at "the best available market rate" or by any
other particular measure.
She also said there was "nothing secret about the mark-ups"
charged because they were disclosed in public databases and on
Kaplan, meanwhile, said it is improper to hold Bank of New
York Mellon executives and directors responsible for practices
that the plaintiffs said resulted in more than $2 billion of
liabilities, and damaged the bank's bottom line, credit rating,
reputation and stock price.
In his decision dated July 2, Kaplan said the lawsuit did
not create "reasonable doubt that the board's inaction was a
valid exercise of business judgment," and that shareholders
should have demanded that the board take action before filing
Kaplan handles nationwide civil litigation over whether Bank
of New York Mellon from 2000 to 2011 overcharged pension funds
and other clients on currency trades.
One such case was brought in 2011 by the U.S. government.
Kaplan in April let it pursue the main claim, that the bank had
fraudulently misrepresented that it would provide "best
execution" to its trading clients.
JPMorgan spokesman Justin Perras said in a statement that
the bank is gratified by Cote's decision, which "vindicates our
position and our business.
Bank of New York Mellon spokesman Kevin Heine said that the
bank is pleased with Kaplan's decision. A lawyer for the Bank of
New York Mellon officials did not immediately respond to
requests for comment on Kaplan's decision.
The cases are Louisiana Municipal Police Employees'
Retirement System et al v. JPMorgan Chase & Co et al, U.S.
District Court, Southern District of New York, No. 12-06659; and
In re: Bank of New York Mellon Corp Shareholder Derivative
Litigation in the same court, No. 11-08471. The nationwide
litigation is In re: Bank of New York Mellon Corp Forex
Transactions Litigation in the same court, No. 12-md-02335.