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Pension fund relying on N.Y. suit

Treasurer Steven Grossman says the state lost $29 million in exchange fees. Treasurer Steven Grossman says the state lost $29 million in exchange fees.
By Beth Healy
Globe Staff / October 11, 2011

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The pension fund for Massachusetts state workers plans to rely on New York’s sweeping $2 billion lawsuit filed last week against Bank of New York Mellon Corp. to recoup alleged overcharges on foreign exchange trades, state Treasurer Steven Grossman said.

That decision is the latest indication that Attorney General Martha Coakley does not plan to sue BNY Mellon directly, as some other large state pension funds have done, following whistle-blower claims brought to her office and officials in other states by Harry Markopolos, the tipster in the Madoff scandal.

Grossman, who is chairman of the $50 billion Pension Reserves Investment Management board, has alleged that the state fund lost $29 million over the past decade on fees for exchanging currency to buy and sell stocks in foreign markets.

Markopolos, in an interview, said, “To date we’ve heard from Virginia, Florida, the New York attorney general. We’re still waiting to hear from the Massachusetts AG.’’ With other states and municipalities likely to weigh in, he noted, “You can see how the case easily gets to $5 billion.’’

Coakley could be giving up the chance to win additional damages - as much as three times the actual losses - unless she files a separate case in New York, officials of the New York attorney general’s office said. By simply waiting for the proceeds of the New York case, should it succeed, the pension board might not be eligible for damages beyond the losses.

But Coakley spokesman Brad Puffer said the state is covered by the New York case and by a separate civil case filed by whistle-blowers in Massachusetts.

“Any restitution obtained from these lawsuits would benefit’’ the state pension system, Puffer sad, as well as Boston and other municipalities affected by the foreign exchange issues.

Grossman has pressed the attorney general since summer to take action in a matter that has garnered national headlines and become a potential multibillion-dollar liability for BNY Mellon and other large banks involved in trading currency for securities transactions, including Boston’s State Street Corp. The New York case, which represents retirement funds of New York City employees and the State University of New York, among others, accuses BNY Mellon of charging clients the highest rates possible on currency trades each day, while making the actual trades at better prices and pocketing the difference.

Mellon denies the charges and moved aggressively last week to defend itself. In a press release and in advertisements in major newspapers, the company said, “The claims in this lawsuit are flat out wrong, both on the law and on the facts.’’ The bank said the lawsuit reflects “a fundamental misunderstanding’’ by the New York attorney general and his staff of how custodian banks and currency markets work.

BNY Mellon is facing large lawsuits in Virginia and Florida related to alleged overcharging in the $4 trillion-a-day foreign exchange market. State Street faces charges in California, from the nation’s largest pension funds, and has denied wrongdoing.

Grossman said his office was working with Coakley’s staff to become a party to the case filed by New York Attorney General Eric T. Schneiderman. The US Department of Justice also filed a case against BNY Mellon last week on similar grounds.

“We felt that the right approach was to work with the federal government and other states in order to find the strongest possible result,’’ Grossman said.

New York’s lawsuit seeks, in part, to recoup fees on behalf of any company or mutual fund in the country that pays BNY Mellon for foreign exchange services; among the long list of such entities is Boston’s Fidelity Investments. For the New York groups the attorney general is representing, his lawsuit is seeking treble damages; other states are doing the same for their pension funds.

The City of Boston retirement board also is awaiting word from Coakley’s office on whether she intends to pursue a case on its behalf against State Street.

Beth Healy can be reached at bhealy@globe.com.