US - The State Treasurer of Ohio has called on the attorney general to launch an investigation into whether members of the state's pension funds have been exploited by custodial banks conducting foreign currency exchanges.
In a letter to attorney general Mike DeWine, State Treasurer Josh Mandel said he was concerned the banks may have manipulated foreign currency trade prices in order to maximise their profits at the expense of the pension funds.
Mandel, who acts as custodian to Ohio's public pension schemes including the Ohio Public Employee Retirement System, School Employees Retirement System of Ohio, State Teachers Retirement System of Ohio and the Ohio Police & Fire Pension Fund, said as of April 30 2011, the four funds had about $39bn of their $170bn combined assets invested in international securities.
"I am concerned that custodial banks on contract with the state may have manipulated foreign currency exchange rates to mark up (for buys) and mark down (for sales) the prices paid by these funds," Mandel said in the letter.
"Rather than charging the market rate at the time of the order, these banks may have inflated their profits by charging close to the highest or lowest prices of the day depending on what was advantageous to them, not their client. If these banks engaged in this practice, the net result over thousands of international transactions and more than a dozen years might be that Ohio pensioners and businesses paid tens of millions of dollars more than market rates."
Ohio would not be alone in investigating whether custodial banks have been exploiting state funds, Mandel added. There are currently investigations or lawsuits underway in states including California, Florida, North Carolina and Virginia, where they believe foreign currency exchange rates were manipulated. The Securities and Exchange Commission has also agreed to investigate the matter.
Mandel did not name the banks accused, but earlier this week Massachusetts State Treasurer Steven Grossman and Massachusetts Pension Reserves Investment Management (PRIM) board executive director Michael Trotsky published the results of a report which found the state pension fund has been overcharged by more than $20m by BNY Mellon over the past four years during foreign currency exchange transactions.
"These overcharges are simply unacceptable, and we will take every step available to recoup lost funds and prevent this from happening in the future," said Grossman. "Profiting disproportionately on the backs of the Commonwealth's pensioners cannot be allowed to continue."
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