Calif. Attorney General Targets Boston Bank for Trading Fees

California's attorney general claims in a lawsuit that a bank overcharged two state pension funds by more than $56 million when executing foreign-currency trades.

Attorney General Jerry Brown says Boston-based State Street Bank & Trust defrauded the pension funds over an eight-year period beginning in 2001.

Brown claims in his suit, which is pending in the Sacramento County Superior Court, that the bank violated California's False Claims Act.

The law prohibits the making of false claims to obtain money from the state.

"We categorically deny any allegations of wrongdoing and will defend ourselves against any litigation," State Street representative Carolyn Cichon said in an e-mail.

Brown says in his complaint that the alleged fraud occurred while the bank was providing financial services to California's largest pension funds, CalPERS and CalSTRS. The funds are state agencies that provide retirement benefits for public employees, retirees and their families.

The attorney general says State Street perpetrated the fraud by secretly increasing the price of the foreign-currency trades that it made for the pension funds.

The suit says the bank was obligated by its contract with the pension funds to price the trades at the interbank rate, which is the price major financial institutions use when buying and selling foreign currency, at the precise time of the trade.

Brown claims that State Street did not do so and instead charged at or near the highest interbank rate of the day, even if that rate was lower at the actual time when a trade was made.

The suit says State Street hid the overcharges by failing to include time stamp information in the trading reports it submitted to the pension funds.

Brown says that without the time stamp data CalPERS and CalSTRS could not tell when the bank actually made the trades and could not compute the actual trade costs.

His office says the alleged fraud scheme cost the pension funds more than $56 million.

The suit is seeking an award of triple damages under the False Claims Act, civil penalties of $10,000 for each false claim allegedly submitted by the bank, and costs and attorney fees.

Brown says damages penalties could be more than $200 million.

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