Wednesday, October 21, 2009

White Collar and Securities: California Sues State Street Bank for Fraud

The California attorney general has filed a suit against the State Street Corporation alleging that State Street Bank cheated California's two largest pension funds out of almost $57 million. The state alleges that the bank committed the fraud by overcharging the pension funds for foreign exchange trades. Specifically, the complaint alleges that State Street Bank overcharged Calpers and Calstrs for managing their accounts and concealed the overcharges. Including interest and penalties, the suit seeks recovery of $200 million.

The attorney general alleges that State Street Bank executed currency trades of more than $35 billion for the pension funds since 2001. The suit claims that State Street entered false exchange rates into the databases for electronic trading and reported false prices in the account statements that it provided to the pension funds. The effect of the false prices was allegedly to convince the state's fund managers that costs were higher than they were in reality, thus diminishing the amounts in the funds. The amounts by which the scheme diminished the accounts was pocketed by the bank. Moreover, the complaint alleges that the bank failed to include time stamp information in its reports, thus making impossible the pension funds' verification of the actual cost of trades. In essence, the failure to include the time stamps would frustrate attempts by the pension funds to create audit trails.

Calpers is the California Public Employees' Retirement System and Calstrs is the California State Teachers' Retirement System.

The case grew out of the actions of whistle-blowers who brought the allegations of fraud to the attention of California investigators. If California prevails, the whistle-blowers will share in the recovery.

For more about the California law suit please see The New York Times, "State Street Bank Accused of Fraud by California," October 21, 2009,

No comments: