The state of Virginia is suing the Bank of New York Mellon, alleging that the company that oversees the commonwealth's retirement system skimmed money off the top of financial transactions it made on behalf of the state.
The suit, filed Thursday in Fairfax County Circuit Court, alleges the bank, which oversees the $54 billion Virginia Retirement system, of defrauding Virginia taxpayers by fraudulently valuing foreign currency exchanges during trades.
The state is taking over a case that had been filed by the Delaware-based FX analytics — a case in which Attorney General Ken Cuccinelli had previously intervened.
Mr. Cuccinelli had spent several months trying to resolve the matter with the bank, but eventually decided to file suit, which alleges that the bank falsified foreign currency exchange rates and pocketed the difference.
The state of Virginia pays the bank $4.5 million a year to manage Virginia's pensions; Mr. Cuccinelli is also suing on behalf of the retirement systems of Arlington and Fairfax counties.
The lawsuit seeks $120 million in damages and about $811.6 million in civil penalties — $11,000 for each of more than 73,000 trades that have been purported to skim the retirement funds.
"To hide the actual costs and essentially skim money off the top of every transaction is unconscionable," Mr. Cuccinelli said in a statement. "We will do everything we can to get those overcharges returned to the commonwealth's retirement funds and to the employees and retirees of the commonwealth and the localities."
Kevin Heine, a spokesman for the Bank of New York Mellon, said the lawsuit "reflects a flawed understanding of foreign currency markets" and predicted the bank would prevail in court.
"We value our client relationships and are always prepared to respond to our clients' questions about the pricing of our services," Heine said. "While our first choice is always an amicable resolution, we refuse to be coerced into paying for and admitting to wrongdoing where none exists."
The Associated Press contributed to this report.
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