State Street Forex Practices Investigated

State Street Corp. said on Monday the U.S. attorney in Manhattan and the New York attorney general are investigating its foreign-exchange trades.

In its annual report filing with the U.S. Securities and Exchange Commission, the company said the New York attorney general and the U.S. attorney for the Southern District of New York have made inquiries into what State Street described as “our indirect foreign-exchange execution methods,” Reuters reports. Those same New York authorities last year filed civil lawsuits against BNY Mellon (see “Mass. Pension Fund Drops BNY Mellon as Forex Provider”).  

Reuters explained that at issue are the prices custody banks have charged on so-called non-negotiated trades, typically on forex transactions that are less than $1 million. Pension funds and U.S. authorities have accused the custody banks of misrepresenting the pricing on the trades. The banks have denied any wrongdoing, but they also have changed their practices in the marketplace amid the fallout.  

In its annual report, State Street said heightened regulatory and media scrutiny on these forex trades could result in pressure on pricing and reduce client volume.  

In 2009, California’s attorney general accused State Street of making false claims on its forex trading (see “CA Charges State Street for ‘Unconscionable Fraud’ against Pension Funds”). The attorney general in that case asserted actual damages of $56 million for the period from 2001 to 2009. It also is seeking additional penalties and damages.