SACRAMENTO—California sued State Street Bank and Trust today for allegedly committing "unconscionable fraud" against the state's two largest public pension funds, and seeks more than $200 million in overcharges and penalties.
Atty. Gen. Jerry Brown contends that the Boston investment banking firm overcharged the California Public Employees Retirement System and the California State Teachers Retirement System by about $50 million for the costs of carrying out foreign currency trades since 2001.
"Over a period of eight years, State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California's public pension funds," Brown said in a statement. "This is just the latest example of how clever financial traders violate laws and rip off the public trust."
A lawsuit, unsealed this morning in Sacramento County Superior Court, originally was filed under seal by a whistleblower who alleged that State Street secretly marked up the price of interbank foreign currency trades. The charges were submitted under the California False Claims Act and subsequently filed in court by Brown's lawyers.
A state investigation revealed that State Street overcharged the two funds by pegging specific trades at or near the highest rate of the day, rather than the actual rate at the time of the transaction, Brown said.
Brown estimated that the pension funds were overcharged by more than $56.6 million over eight years. The lawsuit asks for triple damages, plus civil penalties. The total could reach $200 million, Brown said.
"We categorically deny any allegations of wrongdoing and will defend ourselves against any litigation," said Carolyn Cichon, a spokeswoman for the bank's parent company, State Street Corp.