Published March 28, 2013
NEW YORK – A U.S. judge said on Thursday he was sympathetic to the U.S. government's use of a 1989 law against Bank of New York Mellon Corp in a lawsuit accusing it of overcharging clients for trading currencies
The arguments before U.S. District Judge Lewis Kaplan in Manhattan were a test of the U.S. Justice Department's use of a powerful law born out of the savings-and-loan crisis.
The law, known as the Financial Institutional Reform, Recovery and Enforcement Act, is at the heart of a series of civil lawsuits filed in the wake of the recent financial crisis. It is also the core of the lawsuit against BNY Mellon, which had moved to dismiss the case.
"I am unpersuaded by the defense arguments on FIRREA, and you can expect I will deny the motion to that extent," Kaplan said.
The judge said he was otherwise reserving a decision on BNY Mellon's motion to dismiss until a later date.
Kevin Heine, a spokesman for BNY Mellon, said in a statement that the bank continues to "believe the lawsuit is without merit."
A spokeswoman for Manhattan U.S. Attorney Preet Bharara, whose office brought the case, declined comment.
The lawsuit, filed in 2011, accuses BNY Mellon of engaging in a scheme from at least 2000 to defraud custodial customers who used its foreign exchange services.
The lawsuit claims the bank misled clients about how it determined currency exchange rates for certain transactions.
BNY Mellon reached a partial settlement in January 2012, agreeing to change disclosures it provided about its foreign exchange services. The damages claims continued. The Justice Department is seeking an unspecified amount of penalties.
The lawsuit was brought under FIRREA, a 1989 act enacted after the Savings & Loans crisis. The law has a low burden of proof, strong subpoena power and a long 10-year statute of limitations.
The Justice Department has asserted that claims under the law in pending lawsuits against Bank of America Corp and Wells Fargo & Co . Both are scheduled to argue in April that the claims be dismissed using arguments similar to BNY Mellon.
Lawyers with Bharara's office, which brought all three lawsuits, have sought a broad interpretation of the law, which covers fraud that "affects a federally insured financial institution."
"There clearly is nothing in the legislative history that exempts federally insured financial institutions under FIRREA," said Pierre Armand, a lawyer for the government.
But BNY Mellon has contended the Justice Department was inappropriately seeking to bring claims when the financial institution affected under the prosecutors' theory was itself.
Reid Figel, a lawyer for BNY Mellon, called the government's use of the law "unprecedented" and said its "plain meaning" meant FIRREA could only apply when a third-party commits a fraud that affects a bank.
"Congress clearing intended to limit the kinds of frauds the government could pursue under FIRREA," Figel said.
Kaplan, though, expressed doubts on that point.
"I'm having a hard time seeing it as the arguable meaning, let alone plain meaning," he said.
The case is United States v. Bank of New York Mellon, U.S. District Court, Southern District of New York, No. 11-06969.
(Reporting by Nate Raymond in New York. Editing by Andre Grenon)