A New York federal judge on June 13, 2013, declined to dismiss a class action in multidistrict litigation accusing Bank of New York Mellon Corp. of manipulating foreign currency exchange transactions.
U.S. District Judge Lewis A. Kaplan said in a one-page order that BNY Mellon, its director defendants and certain underwriter defendants could not dodge the suit from the Oregon Public Employees Retirement Fund alleging that the bank charged its clients inflated foreign exchange rates when buying foreign currency and deflated foreign exchange rates when selling foreign currency.
The decision comes about five months after Judge Kaplan partially dismissed claims of breach of fiduciary duty and dismissed claims of unjust enrichment and breach of implied covenant from a another suit in the MDL filed by the Southeastern Pennsylvania Transportation Authority.
One as-yet-unanswered question, Judge Kaplan said in his opinion, is whether the bank had an obligation to provide so-called best execution pricing for SEPTA’s foreign exchange transactions. Best execution policies require broker-dealers to use due diligence to get customers as favorable a price as possible under prevailing market conditions, according to the Financial Industry Regulatory Authority.
BNY Mellon has argued that it had no duty to get best execution prices for its foreign exchange customers and said its definition of best execution differs from FINRA’s. Even if it were required to meet the best execution standard, the bank was still entitled to mark up prices on transactions and was under no obligation to match the interbank market rate as the suit contends, the bank said.
The Judge said “BNY Mellon may be correct that any best execution obligation would not have required it to provide FX to SEPTA at precisely the rates it could obtain in the interbank market. But that hardly settles as a matter of law that its alleged conduct satisfied the best execution standard, a heavily fact-bound question.” Judge Kaplan also said in January that BNY Mellon may win the case if it proves its policies didn’t rely on standard best execution pricing but were rather based on a price that was no less favorable than the bank’s daily schedule price and within 3 percent of a relevant interbank rate.
The MDL encompasses complaints related to allegations that BNY Mellon charged rates on currency transactions that were higher than rates at which the bank actually performed the services.
The plaintiffs — which retained BNY Mellon to provide custodian services for the benefit of its employee pension benefit plans — seek to recover on behalf of all similarly affected clients the proceeds unlawfully obtained through the bank’s allegedly unfair foreign exchange trading practices.
The plaintiffs are represented by Steven B. Singer, Abraham Alexander, Gerald H. Silk and Laura H. Gundersheim of Bernstein Litowitz Berger & Grossmann LLP and by Keith A. Ketterling and Scott A. Shorr of Stoll, Stoll, Berne, Lokting & Shlachter P.C.