California Attorney General Jerry Brown accused State Street Bank and Trust Co. of "unconscionable fraud" on Tuesday, claiming in a lawsuit the firm had bilked the state's largest pension funds of more than $200 million.
The suit alleges Boston-based State Street overcharged the California Public Employees Retirement System and the California State Teachers' Retirement System with fees and penalties for handling foreign currency trades.
"For years, State Street, led by a group of its internal 'risk traders,' raided the custodial accounts of California's two largest public pension funds, in a total amount exceeding $56 million, by fraudulently pricing foreign currency trades State Street executed for the pension funds," the state's complaint alleges.
The bank denied the claims.
"We categorically deny any allegations of wrongdoing and will defend ourselves against any litigation," Hannah Grove, a spokeswoman for the bank, said in an e-mail.
Brown launched an independent investigation into the bank after a group of whistleblowers called Associates Against FX Insider Trading raised the claims in a 2008 lawsuit.
"This is just the latest example of how clever financial traders violate laws and rip off the public trust," Brown said.
Brown's office found that State Street charged the highest rates on trades despite being contractually obligated to charge a lower rate, called an interbank rate, by marking them up.
The complaint alleges the bank attempted to conceal its fraudulent pricing practices by entering fake exchange rates into its trading databases, which automatically took money from the funds' accounts.