Foreign Exchange Fine Print Haunts BNY Mellon, State Street

State Street Corp has unveiled a new twist in its legal defense against charges of foreign exchange fraud: We're not like Bank of New York Mellon Corp.

State Street Corp has unveiled a new twist in its legal defense against charges of foreign exchange fraud: We're not like Bank of New York Mellon Corp.

While both custody banks deny they routinely overcharged state pension fund clients on foreign-exchange trades, State Street is trying to score points in court by highlighting differences in the phrases it used in marketing materials, sometimes buried deep in the fine print.

BNY Mellon frequently told pension fund clients that it provided forex trades "free of charge." Boston-based State Street was less direct in some of its promotional material, often describing its forex trades as "based on" market prices.

What's a few words among banks and their pension fund clients?

Plenty, as it turns out.

"Cases can very much turn on words," said Anthony Sabino, a lawyer and business professor at St. John's University. "Certainly courts will disregard what's deemed to be salesmanship and puffery. But they can also hold these banks to the language they use."

The banks got into trouble by promoting seemingly lower wholesale-type pricing on small, retail-size forex trades called standing instruction transactions. So-called negotiated trades, used by larger forex traders, account for most of the banks' volume, but standing instructions are usually much more profitable.

Pension funds in California, Florida, Massachusetts, New York and Virginia, for example, claim the banks got their frothy profit margins by loading them up with hidden price markups. Both banks have said those claims have no merit.

State Street recently balked at comparisons to BNY Mellon in a federal court when an Arkansas pension fund attempted to link the Boston-based custody bank to its New York-based archrival.

The bank said it "did not provide that FX trades would be executed 'free of charge.'" The Arkansas Teacher Retirement System's "attempt to analogize to BNY is misplaced," State Street said in a filing in U.S. District Court in Boston.