Deal Reaps Whistleblower Group Large Bank of New York-Virginia Deal Payout

Date Published:

by Cynthia A. Diaz-Shepard

Bank of New York Mellon Corporation just reached a deal with the state of Virginia to resolve allegations that the financial firm charged hidden markups on currency transactions to Virginia’s employee pension fund.

The deal, said The Wall Street Journal, citing a person familiar with the negotiations, also includes a $1.1 million payment, being made by the state of Virginia, to a whistleblower group. One member of the whistleblower group, Grant Wilson, spent two years as a secret informant while also sitting on the Bank of New York Mellon’s Pittsburgh trading desk. The Journal disclosed Wilson’s identity in a page-one article in 2011.

The agreement also indicates that the state of Virginia will not pursue litigation against Bank of New York Mellon; the bank will offer reduced fees going forward, under a new custodial deal, said sources familiar with the negotiations, according to the Journal.

Last year, Bank of New York Mellon was accused of charging pension funds, and other institutional clients, for hidden currency transaction mark-ups; the bank maintains its innocence and Virginia is just one of a number of states that sued the bank over how it handled its foreign exchanges. Virginia filed a lawsuit against Bank of New York Mellon, but that lawsuit was dismissed this May when a judge found the state could not appropriately pursue the lawsuit against the bank using the False Claims Act clauses under which it was filed, noted the Journal. Since, Virginia indicated it was considering its options. This payment is the first such payment in these cases, noted the Journal.

Although the whistleblower group and the bank declined to comment, a Virginia attorney general’s (AG) spokesman told the Journal, via email that, “The litigation is over and BNY Mellon and the funds have extended their respective business relationships for 10 years…. This resolution has conferred significant financial benefits for Virginia employees and retirees.” The spokesman pointed out that the AG’s office was not privy to reworked agreements conducted between the bank and the state’s pension system and would not comment on these details, said the Journal. The bank did acknowledge that the whistleblower payment did not come from Bank of New York Mellon.

A whistleblower is an employee, former employee, or organization member—especially a business or government agency—who reports misconduct to people or entities with the power and presumed willingness to take corrective action. Generally, the misconduct is a violation of law, rule, regulation, and/or presents a direct threat to public interest, such as fraud, health/safety violations, and corruption. Whistleblower complaints focus on conduct prohibited by a specific law and that may cause damage to public safety, that may waste tax dollars, or that may violate public trust in an honest, accountable government. The hope is that massive financial debacles, such as what was seen in the historic Bernard Madoff Ponzi scam, are averted.

In this case, explained the Journal, Wilson was a Japanese yen trader on a Bank of New York Mellon currency desk. He worked for the bank for 10 years, spending the last two years collecting data and documents that assisted in the probe conducted by the government and the whistleblower group, FX Analytics. Wilson’s information provided details on how the alleged scheme worked and what the bank made. Wilson left Bank of New York Mellon in 2011 after passing on the information.

Wilson and his legal team utilized a Delaware-bases shell partnership, met on Saturdays to ensure Wilson would not miss office time, and discussed strategy at restaurants. Wilson, two lawyers, and two other whistleblowers in a separate case, are part of a group that includes Harry Markopolos—the fraud investigator known for his early suspicions concerning Madoff’s fraud, the Journal said.

In 2011, the U.S. Justice Department (DOJ) alleged that Bank of New York Mellon overcharged clients for currency trades for at least ten years and had received more $1.5 billion from its practices during one four-year period, alone. The bank said it came to a five-year custody agreement with the Virginia retirement system, under which it will continue to provide custody, securities, and foreign-exchange services to the Virginia Retirement System, with an option for a five-year renewal, said the Journal. The DOJ’s lawsuit revealed that Bank of New York Mellon plans on working with angry clients outside of the court system.