State Street loses bid to dismiss Arkansas FX case

Reuters News
Posted: May 09, 2012 1:34 PM
State Street loses bid to dismiss Arkansas FX case

(Reuters) - A U.S. judge in Boston has denied a motion by State Street Corp to dismiss claims that the custody bank overcharged an Arkansas pension fund on its foreign currency trades.

State Street is accused of concealing markups on forex trades made on behalf of the Arkansas Teacher Retirement System. The bank denies any wrongdoing.

U.S. District Judge Mark Wolf allowed the civil fraud case filed by the Arkansas pension fund to proceed against State Street Bank & Trust, a key unit of the Boston-based custody bank. The judge's order was entered on Tuesday, court papers show.

The pension fund, which reported more than $8 billion in assets when it filed the lawsuit last year, is seeking a class-action claim against State Street. The bank, which is fighting similar claims by pension funds in other parts of the country, has denied any wrongdoing in court papers.

State Street has disclosed in regulatory filings that its forex business is the subject of several investigations, including by the U.S. Department of Justice, the U.S. Department of Labor and the U.S. Securities and Exchange Commission. The bank has said various entities have requested information or issued subpoenas in connection with inquiries into the pricing of its foreign exchange services.

The bank was not immediately available to comment on the judge's ruling in the Arkansas pension case.

But in its motion to dismiss, State Street argued that the Arkansas pension fund and its money managers were sophisticated customers and behaved much like consumers who buy in bulk at large discount warehouses such as Costco Wholesale Corp with the goal of saving money.

"Of course, Costco has no duty to disclose the actual relationship between what it pays for its goods and the prices at which it sells," State Street said in a memorandum to support its dismissal motion. "This is equally true as to FX."

(Reporting By Tim McLaughlin; Editing by Gerald E. McCormick and M.D. Golan)