United States v. Bank of New York Mellon
941 F. Supp. 2d 438
S.D.N.Y.2013Background
- The United States sues The Bank of New York Mellon (BNYM) and an employee, Nichols, under FIRREA, alleging a scheme misrepresenting standing instruction pricing, including that it provided best execution in FX trades.
- BNYM custodial clients were offered standing instruction trading, where BNYM set prices after aggregating requests and executing trades, with pricing disclosed only after the trade.
- The SAC attributes multiple representations about pricing: best execution, interbank-rate reflection, netting, and uniform pricing, made via website, Standard Comment, RFPs, and client communications from 2000–2011.
- Pricing practices allegedly differed by desk and client, with end-of-day nontransparent pricing, occasional benchmarking for favored clients, and netting claims, which allegedly inflated spreads on standing instructions.
- Procedurally, the government seeks civil penalties under FIRREA §1833a; defendants move to dismiss for failure to plead an affected financial institution and fraud with particularity.
- The court in SE PTA previously found similar standing-instruction misrepresentation allegations viable, prompting a first-impression question whether a financial institution may be held liable under §1833a for fraud affecting itself.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BNYM was 'affected' by Nichols’ fraud under §1833a(a). | BNYM was harmed by the fraud via litigation exposure, reputational damage, and lost business. | Affirmative 'affecting' requires victimization or indirect harm only via non-federally insured third parties. | Yes; SAC sufficiently alleges effects on BNYM. |
| Whether §1833a permits penalties against the institution itself for its participation in a fraudulent scheme. | Penalties may apply to the institution when it participates and harms itself through the fraud. | Liability terminates at the perpetrator; the institution should be shielded from penalties. | Denied in full; §1833a permits penalties against the institution. |
| Whether the fraud allegations regarding best execution are plausibly pled as material misrepresentations. | The SAC plausibly alleges that 'best execution' reflected industry understanding and was misrepresented. | Definitions vary; the representations were not necessarily false or misleading. | Plaintiff's best execution misrepresentation adequately pled. |
| Whether ancillary representations (netting, same pricing, and related omissions) are pled with sufficient particularity. | Netting to FRSTF and other pricing representations were misleading and intentional. | Many representations could be understood as non-binding or not inherently deceptive. | Netting to FRSTF and some pricing representations survive; others dismissed. |
Key Cases Cited
- SEPTA v. Bank of New York Mellon Corp., 921 F. Supp. 2d 56 (S.D.N.Y. 2013) (first-in-district FIRREA discussion applying 'affecting' concept to financial institutions in fraud)
- Bouyea v. United States, 152 F.3d 195 (2d Cir. 1998) (constructs 'affecting a financial institution' broadly beyond victimization)
- United States v. Coppola, 671 F.3d 220 (2d Cir. 2012) (statutory interpretation and FIRREA-related penalties in Second Circuit)
- United States v. Mullins, 613 F.3d 1273 (10th Cir. 2010) (affects a financial institution includes risk and potential liability, not just actual loss)