BNY Mellon has reached a $28 million settlement with the state of Florida for disputes related to cash collateral reinvestment losses and alleged overcharging of foreign exchange fees.
As part of BNY Mellon’s securities lending services provided for the Florida Retirement System Trust Fund, the custodian reinvested some of the cash collateral in medium-term notes from Sigma Finance, a structured investment vehicle that collapsed in 2008, causing significant losses for Florida and many other funds. Last year, BNY Mellon reached a $280 million settlement from a class-action suit on the Sigma issue brought by an Oklahoman insurance company.
In addition to the securities lending dispute, this $28 million settlement with Florida ends a lawsuit that originated as a whistleblower complaint from a group called FX Analytics, alleging that BNY Mellon marked up FX spreads and kept the difference between the inflated price and the actual exchange rates. FX Analytics filed similar complaints against BNY Mellon in California and Virginia, but those cases have since been dismissed.
In 2011, Florida’s Attorney General, Pam Bondi, filed an amended complaint to take over the case, leading ultimately to BNY Mellon’s settlement with the state.
A court document from the agreement on November 1 says that in order “to avoid the cost, expense, and uncertainty inherent in litigation,” the two sides decided to settle “without any admission of liability or wrongdoing.”
Despite the legal disputes, Florida’s State Board Administration, which oversees the state pension fund, has extended its custody contract with BNY Mellon over the next decade. In addition to the $28 million, which will be paid as a lump sum, BNY Mellon will also deduct $500,000 in fees for each year the bank provides custody for the state pension fund, beginning in the 2013-14 contract year and ending no later than the 2022-23 contract year. If the custody relationship ends prior to 2022-23, there will be no further fees rebated.
“We’re gratified that the Florida Attorney General is withdrawing her lawsuit and that we’ve resolved issues related to the State Board Administration’s securities lending program,” says Kevin Heine, BNY Mellon’s global head of corporate communications. “We’re pleased to reach an agreement with the State Board Administration that allows us to continue our longstanding relationship. We’ve always viewed these issues as commercial matters and have taken a pragmatic approach to resolving them directly with our clients in order to reach mutually beneficial outcomes.”
BNY Mellon Settles With Florida for $28 Million for FX and Securities Lending Disputes
BNY Mellon has reached a $28 million settlement with the state of Florida for disputes related to cash collateral reinvestment losses and alleged overcharging of foreign exchange fees.