BNY Mellon Can’t Nix Retirement Plans’ Suit Over Forex Transactions

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By Carmen Castro-Pagan

Bank of New York Mellon must defend a proposed class action accusing it of charging excessive, unauthorized and undisclosed rates to seven retirement plans through the bank’s foreign exchange transactions ( Carver v. Bank of N.Y. Mellon , 2017 BL 105050, S.D.N.Y., No. 1:15-cv-10180, 3/31/17 ).

Because the participants are suing in their representative capacity on behalf of the plans, they don’t need to allege an individualized injury to have standing, federal district Judge J. Paul Oetken held March 31. Alleging that BNY Mellon’s foreign exchange pricing methodology contributed to the plans’ financial losses is sufficient to confer them standing on their representative capacity, Oetken said.

At issue in the case were the plans’ investments on foreign securities markets through American depository receipts (ADRs).

ADRs are negotiable certificates issued by a U.S. bank representing a number of shares in foreign stock that are traded on the U.S. exchange. They provide a convenient way for domestic investors to purchase foreign securities without the hassle of foreign currency exchange and with all the protection afforded to domestic entitles holding a U.S. security, according to court documents.

BNY Mellon’s Rates

The lawsuit—brought on behalf of plans sponsored by some big-name companies including Verizon Communications Inc., Baker Hughes Inc. and Hospital Corp. of America—alleges that BNY Mellon set fictitious rates when converting foreign securities into U.S. dollars. The plans claim that the scheme increased BNY Mellon’s revenues and profits by millions of dollars annually at their expense.

In denying BNY Mellon’s motion to dismiss, Oetken found that dividends and other cash received by the banking company from foreign issuers were plan assets within the meaning of the Employee Retirement Income Security Act because the plans had a beneficial ownership interest in them under ordinary notions of property rights.

Resolving a matter of first impression, Oetken rejected BNY Mellon’s argument that the bank wasn’t an ERISA fiduciary because the deposited securities weren’t plan assets within the meaning of the statute.

Oetken also declined to dismiss the plans’ claims that BNY Mellon engaged in prohibited transactions because he said he couldn’t yet determine whether the transactions in questions were “blind transactions” within the meaning of the Labor Department’s interpretative opinions. He also said that he couldn’t yet determine whether BNY Mellon knew or should have known that it was transacting with ERISA plans.

The DOL has relied on certain language in ERISA’s legislative history to conclude that ordinary “blind” purchases or sales of securities, through an exchange in which neither buyer or seller knows the identity of the other party involved, don’t constitute prohibited transactions. However, a transaction isn’t considered “blind” if, before its execution, the fiduciary responsible for the plan’s engagement in the transaction knew, or had reason to know, the identity of the other party to such transaction.

Beins Axelrod P.C., Ciresi Conlin LLP, McTigue Law LLP and Keller Rohrback LLP represent the plans. Paul Weiss Rifkind Wharton & Garrison LLP represents BNY Mellon.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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