Zacks_Analysts' Blog : BNY Mellon FX Case Partly Dismissed - Analyst Blog

On Friday, The Bank of New York Mellon Corporation (BK) won a partial dismissal of foreign exchange (FX) lawsuit filed by the state of Virginia. The Fairfax County Circuit Court Judge dismissed two of the three charges that were filed against the company. But the main accusation of Fraud Against Taxpayers Act remains.

In August, BNY Mellon had been accused by the state of Virginia of failing to provide the best possible prices while making foreign currency trades for the state pension funds. The lawsuit seeks nearly $931.6 million from BNY Mellon in penalties and damages over foreign exchange trades, executed for public pension plans in the state.

BNY Mellon had allegedly charged the pension funds at the highest price of the trading day instead of the actual inter-bank rate at which the currencies were originally purchased. However, at the next hearing of this case on December 21, the company will get another chance to challenge this remaining charge against it.

This is not the only lawsuit filed against BNY Mellon for alleged FX violation. Over the last few months, many states including New York, Florida, California and Massachusetts have filed cases against the company over similar allegations including misleading state and public pension funds, private companies, universities and banks in a scheme of overcharging for foreign exchange.

BNY Mellon is not the only company that has been accused by the states of overcharging the pension funds. Back in 2009, the state of California had charged State Street Corp. (STT) for improperly pricing foreign exchange for California pension funds.

Our Take

The dismissal of a few allegations is of course a good sign for BNY Mellon. While the company is under tremendous pressure due to rising expenses, these lawsuits would further increase its costs. Also, these FX lawsuits would force the clients to reconsider their business ties with the company.

BNY Mellon currently retains its Zacks #3 Rank, which translates to a short-term ‘Hold’ rating.