Massachusetts' top securities regulator William Galvin has charged Bank of New York Mellon with fraud for allegedly overcharging the state's pension fund for currency trades for more than a decade.  With this action, Massachusetts joins other states - including New York and Ohio - that have sued the bank and State Street Bank for charging excessive fees on foreign exchange transactions. In an administrative complaint, Secretary of the Commonwealth William Galvin said that the bank had applied undisclosed markups in currency trading while acting as a custodian for the state's $46 billion pension fund, noting:

"In reality, BNY Mellon's Standing Instruction Service was a hidden scheme that rigged the pricing of non-negotiated foreign exchange transactions while maximizing profits for the bank." --  William Galvin.

By allegedly violating Sections 101 (1-3) of the MA Uniform Securities Act - by misleading and omitting critical information about the default instruction under which foreign exchanges were conducted - the state regulator seeks to disgorge BNY Mellon of fees it received from the Massachusetts state pension fund, and to impose an administrative fine on the bank. The state complaints are consistent in their charges that BNY Mellon and, in some cases Boston-based State Street Corp., cheated public pension funds on currency transactions.  The did so by failing to charge the funds the rates that the banks themselves paid, and instead forced them to pay the day's highest rates - thereby pocketing the difference. An audit by Massachusetts showed that BNY Mellon, the world's biggest custodial bank, overcharged Massachusetts by $30.5 million since 2000.  In worst case scenarios, officials claim that Massachusetts had paid nearly 8 times as much as other customers did for certain transactions. The administrative case is: In the matter of The Bank of New York Mellon Corporation, no. 2011-0044.     [Reuters, 10/26/11]