Cuccinelli intervenes in suit alleging pension fraud

Washington Post Staff Writer
Thursday, January 27, 2011; 8:23 PM

RICHMOND - Virginia Attorney Gen. Ken T. Cuccinelli II is alleging that a major New York financial institution defrauded the state's public pension fund by regularly overcharging for foreign currency trades.

Cuccinelli (R) this week intervened in a lawsuit brought by a private whistleblower that seeks $150 million in damages from the Bank of New York Mellon, which has served as the master custodian of the Virginia Retirement System since 1988.

The lawsuit, first filed in Fairfax County Circuit Court in October 2009 and unsealed by a judge on Monday, charges that since 2001 currency traders for the bank skimmed profits of transactions conducted on Virginia's behalf by falsely reporting the rate at which currency was exchanged.

According to the suit, the foreign exchange practices also involved Fairfax and Arlington counties' pension funds.

The suit has been filed under the Virginia Fraud Against Taxpayers Act, a 2002 statute designed to help root out public corruption. It is the same law that Cuccinelli has used in a controversial effort to compel the University of Virginia to turn over documents related to the work of a global-warming researcher.

"Based on the information the whistleblower provided and the information developed using the investigatory tools authorized in FATA, I determined that it was prudent to intervene in the case and protect the interests of the retirement fund beneficiaries," Cuccinelli said in a brief statement.

The bank is disputing the charges and will fight them in court, a spokesman said.

"We believe the lawsuit is without merit and we intend to defend it vigorously," said Bank of New York Mellon spokesman Kevin Heine.

According to the attorney general's office, the bank is paid $4.5 million a year to hold and protect Virginia's pensions. It manages $55.1 billion in state and local government retirement funds.

The suit was initiated by a Delaware-based partnership called FX Analytics, whose members, according to the legal complaint, had "personal knowledge" of the fraud based on "extensive knowledge and experience" with Bank of New York Mellon.

Under Virginia law, whistleblowers can launch lawsuits against entities they think have defrauded the government. The state can decide later whether to intervene in the suit. If the litigation results in a monetary judgment, the company would collect a portion of the settlement.

Zachary Kitts, an attorney for FX Analytics, declined to name its members but reiterated that they had direct knowledge of the bank's practices. He said they are pleased that Cuccinelli has intervened.

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