State Street Sued: Jerry Brown, California AG, Sues Bank For "Unconscionable Fraud"

Citing "unconscionable fraud," California Attorney General Jerry Brown announced a major lawsuit today against State Street Bank and Trust. Brown seeks to recover more than $200 million from the Boston-based bank.

(SCROLL DOWN TO READ THE PRESS RELEASE AND COMPLAINT.)

According to the complaint, State Street overcharged California's largest pension funds, CalPERS and CalSTRS, for the execution of foreign currency trades. From the press release:

"Over a period of eight years, State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California's public pension funds," Brown said. "This is just the latest example of how clever financial traders violate laws and rip off the public trust."

The charges appear to involve alleged shenanigans with the time-stamping of foreign currency trades.

Read more in the press release:

SACRAMENTO - Seeking to recover more than $200 million in illegal overcharges and penalties, Attorney General Edmund G. Brown Jr. today announced that he has filed suit against State Street Bank and Trust -- one of the world's leading providers of financial services to institutional investors -- for committing "unconscionable fraud" against California's two largest pension funds -- CalPERS and CalSTRS.

The suit, which was unsealed today by a Sacramento Superior Court judge, contends that Boston-based State Street illegally overcharged CalPERS and CalSTRS for the costs of executing foreign currency trades since 2001.

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"Over a period of eight years, State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California's public pension funds," Brown said. "This is just the latest example of how clever financial traders violate laws and rip off the public trust."

The case was originally filed under seal by whistleblowers - "Associates Against FX Insider Trading," who alleged that State Street added a secret and substantial mark-up to the price of interbank foreign currency trades. The interbank rate is the price at which major banks buy and sell foreign currency.

Subsequently, Brown launched an independent investigation into the allegations.

Brown's investigation revealed that State Street was indeed overcharging the two funds. Despite being contractually obligated to charge the interbank rate at the precise time of the trade, State Street consistently charged at or near the highest rate of the day, even if the interbank rate was lower at the time of trade.

Additionally, State Street concealed the fraud by deliberately failing to include time stamp data in its reports, so that the pension funds could not determine the true execution costs by verifying when State Street actually executed the trades. Commenting on this deception, one State Street senior vice president said to another executive that "...if providing execution costs will give [CalPERS] any insight into how much we make off of FX transactions, I will be shocked if [State Street] or anyone would agree to reveal the information."

Brown's office estimates that the pension funds were overcharged by more than $56.6 million over eight years. The lawsuit asks for relief in the amount of triple California's damages, civil penalties of $10,000 for each false claim; and recovery of costs, attorneys' fees and expenses. It is estimated that damages and penalties could exceed more than $200 million.

Under California's False Claims Act, anyone who has previously undisclosed information about a fraud, overcharge, or other false claim against the state, can file a sealed lawsuit on behalf of California to recover the losses. They must notify the Attorney General as well.

Such a case is called a "qui tam" case. If there is a monetary recovery, the law provides that the whistleblower "qui tam plaintiff" receives a share of the amount recovered if the requirements of the statute are met.

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READ the complaint:

n1823_october_20 -

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Comments

[Philclock]

Jerry's had his turn.

Time for Tom Campbell, Republican (don't rule him out for that), independent thinker, former congressman, professor, one of the finest people I have met.

Check him out,

www.campbell.org

[MaynardGK]

Go get 'em, JB!

Jerry was stigmatized as "governor moonbeam" by the know-nothing, see-nothing, close-our eyes
to deteriorating environment, tendency of popular American consumerists. If we had had the courage to keep him, Nader, and McGovern around instead of tossing them aside in submission to the Reagan and Nixon offspring, we'd be in a much better place.

Whatever idealistic aspirations he held then, I hope he maintains and yet I'm sure his subsequent experience
provides some mature pragmatism also. Our best man in California. Sorry, SF mayor-guy!

[schatsie]

Good old Jerry Brown would never have let Enron off the hook for the 50 billion dollars in overcharges in the state of California.... NEVER, but Arnie took the bait.....

[landoffreee]

For a more perfect unions we must have:

Jobs,job securi.ty, job benefits, universal pre school-K.12, housing, affordable college education affordable health are that doesn't ban.krupt sic.k families

good articles; http://ow.ly/dmzm

a better society is one that creates opportunity & while providing safety nets and welfare programs for disadvantaged

[iplaw]

Can you say "Treble Damages"?

[schatsie]

Can you say that TREBLE DAMAGES is meant to be a meaningful penalty to prevent this type of egregious and illegal behavior in the future...

It cracks me up that people think that the Malpractice is about the cost of the related healthcare, it is about PREVENTION of ABUSE by Medical Practitioners....

[truthbagger]

The reason that statutory punitive damages were implemented was to act as a deterrent. After a few companies are bankrupted the message should begin to get out. Well, that would work if the Fed didn't simply write them a check with our tax dollars.

[jsloan]

i think in no time at all we will see not just california going after the banks that have all but destroyed their public pension systems. it was not ice land that got taken to the cleaners. and since these pensions, like our 401k plans, are defined pension plans the money has to come from somewhere.

[vippy]

I remember a time when it was illegal for any company to touch the pension dollars. What happened to that? Pensions were guaranteed.

[PS9]

I think all this Main Street versus Wall Street talk in this case is misleading.

CalPers is a major Wall Street player who throws their weight around and does so proudly. They are major lenders of securities and facilitators of short selling.

People shouldn't be so quick to judge against the bank in this case.

This is likely a case of two sharks in a steel cage.

[Vcubed]

Remember, though, that the bank is accused of fraud and that CalPers, which has not been accused of dishonesty, represents retirees. We're talking about a bank stealing from old people. (disclosure: I have money in the CalSTRS pension fund.)

[chensamabindicka]

Eric Holder, or Jerry Brown? At last, a hardcore Race for the Biggest Cajones that will benefit every citizen of the United States.

Go Jerry. Go Eric.

Go get 'em and bite 'em.

Any of you shrinky dink Attorney's General from the lame states care to stand up, like men, with Eric and Jerry?

[Bobzmcishl]

Way to go Mr. Brown. Banks have no shame. Someone should also go to jail.

[belyeu]

This is just another reason why there needs to be strong government regulations and oversight that protects American's consumers from greedy dishonest corporations.

[realityrules]

Jerry Brown, a good governor, a great AG, I hope he runs again (for gov).

[dadw5boys]

Where is the Post Office these reports were mailed.

[Troubledwawa]

Two things:

1) Thank you very much Jerry Brown!!! I can only wish more Attorney Generals were on the ball like this.

2) Feel free to have me on the jury :-D I would consider it an honor.

[iplaw]

This is California. The rest of you are sheep, except for New York.

[Hollywooddeed]

Good. The AG has some ba IIs.

[glomtt]

I finally made my mind up, it's going to be hard, but I am going to join a credit union the beginning of the year. I refuse to contribute to what banks are doing to the American people. They are going to continue, but they won't be doing it with my help anymore.

[rzan1]

I have belonged to a credit union for the past 27 years. People should start joining credit unions.

[jsarets]

A great choice! It's not hard, either. The large majority of credit unions are extremely friendly and very good to their members, especially new members. You generally get higher rates on deposit products, lower rates on credit products, and a share of the surplus revenues, plus the same level of federal deposit insurance you get at an ordinary bank.

[MissVirginiaVoter]

Did you see the exchange on CNBC today! Anchor is basically attacking Attorney General, skip to 3:30min,
http://www.cnbc.com/id/15840232?video=1301828700&play=1

[glomtt]

Just another reason why I don't get my news from CNBC, it doesn't suprise me one bit.

[urbangreen]

Thanks. Who was the bimbette who took the cheap shot at Brown by implying this was just a PR gimmick by an AG running for governor? What nonsense. Brown handled it very well.

[vippy]

Media outlets are owned by the criminals, Mafia, or whatever you call them. The sooner we realize that the better off we are. Read foreign newspapers!