The Wall Street Journal reported on October 20th that California Attorney General Jerry Brown has sued State Street Bank and Trust. Brown is seeking to recover $200 million in illegal overcharges and penalties that the bank misappropriated from two state agencies, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System.
“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,” Mr. Brown said in a statement. “This is just the latest example of how clever financial traders violate laws and rip off the public trust.”
State Street had been contracted by California to manage these funds. But the lawsuit alleges that State Street defrauded these funds by marking up the price of interbank foreign currency trades. Instead of charging the interest rate at the time of the trade, State Street instead charged the highest rate of the day. The bank then did not submit time stamp information to California in order to cover their tracks.
Attorney General Brown has been increasing his regulator efforts against financial firms in recent months. Last month, he started an investigation into whether the top ratings firms played a complicit role in the financial crisis by assigning triple-A ratings to worthless structured products.
State Street has denied California’s allegations.