Federal, state, and local lawsuits were initiated in New York last week alleging that BNY Mellon violated the federal and New York False Claims Acts by defrauding customers.  New York State also filed allegations under the Martin Act, which allows New York to recover money on behalf of investors nationwide for securities violations without having to prove intent to defraud.

As a custody bank, BNY Mellon exchanges currency in order to facilitate its customers’ investments in foreign markets.  According to the allegations, BNY Mellon guaranteed that it would provide its customers the best rate for foreign currency exchange transactions, but instead frequently gave them the worst rate of the day.  Mellon purportedly made $2 billion from this fraudulent scheme.  The complaint filed by U.S. Attorney’s office quoted a 2004 email reminding employees of the importance of this scheme and stating that “we all understand how the bonus pool funds.”

The suits began when Harry Markopolos, the individual who correctly raised suspicions about Bernard Madoff’s Ponzi scheme years before it came to light, had a hunch that BNY Mellon was engaged in fraudulent activity.  Markopolos, now a fraud investigator, and his legal team approached an employee at BNY Mellon and two former employees at State Street, the other largest custody bank.  All three worked together with Mr. Markopolos, who rigorously guarded each of their identities, even creating a Delaware partnership to shield them.  Mr. Wilson, who worked at BNY Mellon, continued to work at the bank for two years while the case was pending, continuing to gather evidence; he retired earlier this year, before his identity was revealed.

BNY Mellon’s clients range from New York City pension funds to Walt Disney Co. to the state of New Mexico.

Read the entire articles, “Pressure Mounts in Forex Probe of BNY”; “The Difference Between Puffery and Fraud”; “Secret Informant Surfaces in BNY Currency Probe”
Read the entire press release, “A.G. Schneiderman & NYC Sue Bank of New York Mellon For Defrauding Pension Funds, Other Customers in Foreign Currency Trading”