U.S. states ramp up foreign currency trade probes

Source says more court complaints may be under seal (Adds comments, Rosetta Stone Language Washington state settlement with State Street;updates stock prices) By Martha Graybow and Tom Hals NEW YORK/WILMINGTON, Del., Feb 3 (Reuters) - U.S. statesare stepping up probes into whether banks overcharged publicpension funds millions of dollars in converting currencies forsecurities trades, a lucrative area of banking. Officials in Florida, Virginia and California are examiningforeign-exchange fees paid by state retirement systems and theyare getting help from would-be whistle-blowers who have filedprivate lawsuits against Bank of New York Mellon Corp (BK.N)and State Street Corp (STT.N). Florida Attorney General Pam Bondi filed on Thursday astate court notice of intervention in a case involving Bank ofNew York Mellon, according to a court filing. "The AG's office is investigating this practice,"spokeswoman Jennifer Krell Davis said in an email. Foreign exchange traditionally has been a rich source ofrevenue for U.S. banks, particularly custodial banks, which notonly profit from buying international stocks and bonds forpension Rosetta Stone Hindi funds and other investors, but also on trading dollarsinto other currencies. Foreign exchange overall is a hugebusiness, with average daily volume of $4 trillion. States are examining whether banks charged their pensionplans false exchange rates for foreign currency trades ratherthan the actual rates. Washington state announced in October ithad recovered $11.7 million from State Street after a disputeover foreign exchange trade costs from 1997 to 2007. The Florida lawsuit and others are tied to financialinvestigator Harry Markopolos, best known for trying to warnregulators that Bernard Madoff was running a fraud, saidPatrick Burns, spokesman for Taxpayers Against Fraud, aWashington group that has worked with Markopolos. News of the widening scrutiny helped push down shares ofboth Bank of New York Mellon and rival State Street. The twolarge custody banks reject accusations of wrongdoing. There may be similar cases that have not yet been madepublic, said a source familiar with the matter who requestedanonymity because litigation is pending. There is interest inbringing other cases, although pension funds are cautious aboutupsetting relations with banks, this person said. The same whistle-blower that sued State Street in aCalifornia lawsuit, FX Insider Trading, also sued the Rosetta Stone V3 companyin a New York state court, according to legal database Westlaw,part of Thomson Reuters.

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