Steve Chiotakis: The U.S. Justice Department and the New York attorney general's office are suing Bank of New York Mellon, claiming the bank cheated pension funds for a decade and made off with more than $2 billion.
Marketplace's Gregory Warner is with us live now with the latest on that story from the east coast. Good morning Gregory.
Gregory Warner: Good morning.
Chiotakis: What is Bank of New York specifically accused of doing?
Warner: Defrauding institutional clients on foreign currency transactions. And these clients range from the pension funds of librarians and firefighters, to the state of New York, to companies like Disney and GE.
All these investors gave money to Bank of New York Mellon to exchange currency on their behalf, with the understanding that the bank would get them the best price.
That's not what happened, according to the lawsuit, and according to Harry Markopolos. He's a fraud examiner, probably most famous for sounding the early alarm on Bernie Madoff -- but his detective work led to this lawsuit.
Harry Markopolos: The custody banks have been promising a best price, real-time execution. And instead they backdate these trades up to twenty hours giving the worst price to the pension funds.
Meanwhile the bank picks up better prices for their own trades and pocket the difference. And that difference is $2 billion over a decade, according to prosecutors.
Chiotakis: What does this mean, Gregory, for the banking industry?
Warner: The important thing here is that it's not just Bank of New York involved in these trades. I spoke to one currency trader this morning. He says his firm is trying to get out of these arrangements with clients where the bank can set the price.
Markopolos says he hopes to see all the custody banks get completely out of currency exchange, and a whole new industry emerge of currency traders that actually represent their clients best interests.
Chiotakis: Marketplace's Gregory Warner. Thanks.
Gregory Warner: Thanks.