NEW YORK, March 19 (UPI) -- The Bank of New York Mellon, one of the largest deposit banks in the world, has agreed to pay more than $700 million to settle a lawsuit that claimed the bank defrauded investors by lying to them about how money was being managed, officials said Thursday.
A lawsuit was filed against the multinational bank in 2011 by New York Attorney General Eric T. Schneiderman and U.S. attorney in Manhattan Preet Bharara. According to the lawsuit, New York Mellon cheated government pension funds and both individual investors and major corporate investors for more than a decade, the New York Times reported Thursday.
Among other things, the suit claimed the bank assured clients it was managing their investments with the best possible currency trade rates -- when it, in fact, was doing the opposite: Charging investors some of the worst rates available.
Bhrara said clients "trusted the bank to be honest about the financial services it was providing and to deal with them fairly." Instead, he said, the bank and "executives, motivated by outsized profits and bonuses, breached this trust."
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Schneiderman believes the bank cheated investors to the tune of $2 billion, which makes the $714 million settlement rather small. However, he said the penalty indicates that banks will not be allowed to operate in such a reckless fashion.
"Today's settlement shows that institutions and individuals responsible for defrauding investors will be held accountable and face serious consequences for their wrongdoing," he said.
In addition to paying the penalty, the Wall Street Journal reported, the bank is also required to make certain moves as part of the deal. For one, executives who were involved in the scheme must be terminated -- including managing director David Nichols. The bank must also improve its disclosures to clients.
In addition to private investors, investigators say multiple major entities were also defrauded by the bank -- like Walt Disney and Duke University.
The settlement still needs to be approved by a federal judge. If it is, the money will be split among the investors and the authorities who investigated the case. The Times report said Schneiderman's and Bhrara's office will get about $167 million each, $30 million will go to the Securities and Exchange Commission, $14 million to the Department of Labor, and the remaining $335 million will go to the bank's client investors.
A deposit bank, the Bank of New York Mellon is responsible for holding and protecting financial assets for other banks and investors. It was formed in 2007 as the result of a merger between the Bank of New York and the Mellon Financial Corporation.
"We are pleased to put these legacy FX matters behind us, which is in the best interest of our company and our constituents," the bank said Thursday in a prepared statement.
