Massachusetts Pension Fund Overcharged
Abuses in Foreign Currency Exchange to be Remediated
"These overcharges are simply unacceptable, and we will take every step available to recoup lost funds and prevent this from happening in the future," said Grossman. "Profiting disproportionately on the backs of the Commonwealth's pensioners cannot be allowed to continue."
The report found that BYN Mellon charged PRIM an average of nearly 31 basis points for foreign exchange transactions, while industry fees averaged 4 basis points. The bank, in fact, charged only 2.2 basis points when it was required to negotiate its price by PRIM managers, demonstrating its institutional capacity to make foreign currency exchanges at a much lower rate. These kind of exchange transactions typically occur when investments generate or require foreign currencies.
The PRIM Board retained FX Transparency of Framingham, Massachusetts earlier this year to review the past four years of foreign exchange trades done by on its behalf by BNY Mellon. This followed several high-profile instances where pension funds in other states discovered similar overcharges, prompting those states to launch remediation and cost-recovery efforts.
Grossman and Trotsky said that they have directed FX Transparency to audit other foreign exchange transactions done by BYN Mellon on behalf of PRIM back to 2000. They also said that they were taking immediate steps to ensure that provisions are in place to prevent future overcharges, and that they have begun to explore mechanisms to recover the pension fund losses associated with the overcharges.
The Massachusetts PRIM Board has approximately $50 billion of assets under management. The fund has grown 13.6 percent over last year.