New York Attorney General Eric Schneiderman and a U.S. Attorney in Manhattan have filed lawsuits against The Bank of New York Mellon for allegedly bilking clients through foreign currency exchange transactions.

Schneiderman is seeking to recoup $2 billion from BNY Mellon over allegations that the bank priced these transactions at the worst rate at which a currency traded, rather than the market rate at the time of the trade, the suit alleges.

U.S. Attorney Preet Bharara is seeking hundreds of millions of dollars in penalties against the bank for allegedly misleading clients with false information about how it determines what currency exchange rate will be used for transactions.

BNY Mellon keeps its clients in the dark about the timing of these transactions and has made misleading comments when questions were raised, according to Bharara's complaint.

The US Attorney's lawsuit suffers from the same flawed analysis as the New York Attorney General suit, BNY Mellon spokesman Kevin Heine said in a statement. It fundamentally misunderstands and mischaracterizes the global foreign exchange market and the valuable services we provide to our clients as a principal in foreign exchange transactions.

BNY Mellon promised to fight the lawsuits. The bank also ripped into Schneiderman's complaint, contending that clients can opt-out of the forex trading program at issue in the suit if the rates are unsatisfactory. BNY Mellon added that clients have access to daily reports detailing the price received for each transaction, letting them compare pricing to other options.

The Attorney General is in essence attacking BNY Mellon for operating a profitable business, suggesting that we should provide our valuable FX services at cost - something no rational commercial institution would do.

Bank Allegedly Gave Clients the Worst Price, Not Market Price, During Trades

According to Schneiderman, BNY Mellon scored nearly $2 billion from the trades, according to the complaint filed Tuesday in New York State court in Manhattan. The profit made up 65 to 75 percent of BNY Mellon's foreign exchange sales revenue, according to the attorney general's office.

The bank... pocketed for itself the difference between the worst price of the day it had given clients and the market price existing at the time it executed the transaction, the complaint said.

Defrauded clients included the New York City pension funds, which are party to the suit.  A whistleblower brought the allegations against BNY to the attorney general's office in 2009.

After receiving the whistleblower's complaint, an investigation from the attorney general's office uncovered evidence and sworn testimony about BNY Mellon's scheme to lure clients with promises of receiving the best rate of the day, according Schneiderman's office.

This landmark case uncovered a fraud committed against both government and private pension funds, said Executive Deputy Attorney General Karla G. Sanchez.
Schneiderman brought the case under the Martin Act, which allows the attorney general to combat investor fraud. The 90-year-old securities statute has become a powerful tool in the attorney general's arsenal since the office under Eliot Spitzer uncovered it.