Massachusetts pension officials said Monday the public fund has been overcharged by at least $20 million because of foreign exchange trading abuses.
The alleged overcharge total ultimately will be much higher as investigators look into trades dating back to 2000. Massachusetts and several other state pension funds say they have uncovered significant forex-related costs that they believe they should not have been charged for.
Massachusetts Treasurer Steven Grossman and other pension fund officials unveiled an audit recently completed by FX Transparency of Framingham. The audit revealed that the fund has paid too much on non-negotiated forex trades. The pension has to convert currencies when it makes investments overseas.
Officials said the audit covered January 2007 to May of this year. They said they would extend the audit back further to 2000.
The audit puts BNY Mellon (NYSE: BK) in the spotlight because the bank has executed the trades on behalf of the pension fund. The relationship with BNY Mellon dates to 2000, officials said. BNY Mellon denied any wrongdoing. “The report is fundamentally flawed and misleading because it compares negotiated rates to non-negotiated rates as if the industry’s pricing for both is the same. As PRIM itself acknowledged, it is the investment managers, not BNY Mellon, who choose whether to use standing instruction or direct negotiation,” the bank said in a statement.
The $50 billion pension fund, meanwhile, said it plans to explore legal options with the Massachusetts Attorney General’s office.
Grossman, at a press conference, said the public has been “harmed significantly” by forex trading abuses.
In February, FX Transparency co-founder John Galanek told the Boston Business Journal banks have had an economic incentive to give clients uncompetitive rates. That may be one reason currency revenue has been a huge source of bank trading profits over the past decade.
The Massachusetts investigation parallels an expanded SEC investigation that is looking into the foreign exchange trading activity of State Street Corp. (NYSE: STT) and BNY Mellon (NYSE: BK). The SEC is reportedly investigating whether the custody banks overcharged pension funds.