The Bank of New York Friday moved to dismiss a shareholder class action arising from the bank’s alleged practice of charging the worst (or near worst) prices of the day to customers who gave the bank a “standing instruction” to convert currency to or from U.S. dollars for purposes of their foreign securities transactions. The practice allegedly allowed the bank to capture the maximum profits from intraday trading spreads, to the detriment of its customers. The suit follows on the heels of suits filed by the Justice Department and New York Attorney General.
Bank of New York’s motion argues: “Spot transactions in foreign currencies occur in an unregulated market. BNYM could lawfully buy and sell at whatever prices that market would bear, without any requirement to disclose how those prices were set or how much money it made.” Then, quoting an opinion from Judge Easterbrook, the motion continues:
Money is just a commodity in an international market. . . . Neiman Marcus does not tell customers what it paid for the clothes they buy, nor need an auto dealer reveal rebates and incentives it receives to sell cars. This is true in financial markets no less than markets for physical goods. The customer of a bank’s foreign-exchange section (or an airport’s currency kiosk) is quoted a retail rate, not a wholesale rate, and must turn to the newspapers or the Internet to determine how much the bank has marked up its Swiss Francs or Indian Rupees.
The plaintiffs alleged that statements on Bank of New York’s website indicated that customers would get the “best execution,” but Bank of New York argues that “the website could not defraud BNYM’s customers unless those customers read and relied on the statements it contained – which Plaintiffs fail to allege.” Bank of New York’s officers and directors filed a separate motion adding the argument that there were insufficient allegations they personally “made” the allegedly false statements, as required under Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (June 13, 2011).