* NY judge refuses to dismiss fraud claims against BNY Mellon
* NY attorney general brought case in 2011
* Attorney general claims BNY Mellon earned $2 bln through rate fraud
By Karen Freifeld
NEW YORK, Aug 6 (Reuters) - A $2 billion lawsuit brought by New York’s attorney general accusing Bank of New York Mellon of overcharging clients for foreign exchange transactions can proceed, a state judge has ruled.
The ruling by Justice Marcy Friedman, which was made public on Tuesday, cleared a major hurdle for the lawsuit, one of several brought by state and federal authorities over foreign currency transactions.
New York Attorney General Eric Schneiderman sued BNY Mellon in 2011, saying the bank of giving customers “the worst price” of the trading day rather than market price at the time of the trade.
The lawsuit accused the bank of fraudulent misrepresentation for saying it would provide the best execution to its clients, which included New York city pension funds.
BNY Mellon earned $2 billion between 2001 and 2011 through the practice, the lawsuit said.
A spokesman said the bank would “vigorously defend” itself against the lawsuit.
“Today’s decision allows my office to proceed in seeking $2 billion for retirees and scores of private investors nationwide who were ripped off by Bank of New York Mellon,” Schneiderman said in a statement.
Other states, along with federal authorities, have brought similar cases against BNY Mellon, Boston-based State Street Corp and other banks. A 2011 lawsuit against BNY filed by Manhattan U.S. Attorney Preet Bharara also is pending.
In her decision, Friedman let stand claims Schneiderman brought under the Martin Act, New York’s powerful securities fraud statute, despite arguments by BNY Mellon that that the statute did not apply to spot sales of foreign currencies.
Friedman also allowed some claims for breach of fiduciary duty and breach of contract. She threw out a claim for unjust enrichment, as well as whistleblower claims alleging violations of New York’s False Claims Act.
“We are pleased that the New York court has dismissed the whistleblower claims which, like similar False Claims Act dismissals in other states, demonstrates that such claims have no legal merit,” BNY Mellon spokesman Kevin Heine said. “We continue to believe the remaining claims are unwarranted.”
Last year, Virginia dismissed a similar lawsuit after that state’s attorney general intervened in a whistleblower case. A California court also threw out certain claims in a case there filed under that state’s False Claims Act.
The bank had said it accurately reported the actual exchange rates through trade confirmations and account statements.
In April, a federal judge allowed the Manhattan U.S. Attorney lawsuit against BNY Mellon over similar allegations to proceed, though it held the “best rate of day” representation was insufficient to support a fraud claim. BNY Mellon entered into a partial settlement in that case in January 2012, agreeing to change disclosures regarding its foreign exchange services. The damages claims continued.
Meantime, another lawsuit accusing JPMorgan Chase & Co. of breaching its fiduciary to custodial clients by charging “hidden and excessive mark-ups” on currency trades was dismissed last month.
The New York City pension funds will replace Bank of New York Mellon with State State Corp as custodian when BNY Mellon’s contract expires this fall.
BNY Mellon is the world’s largest custody bank, overseeing $26.2 trillion in assets under custody and administration.
The case is People of the State of New York v. Bank of New York Mellon, New York State Supreme Court, New York County, No. 114735/2009.