For Immediate Release - June 29, 2011

Additional Overcharges Found in Massachusetts Pension System

Review Back to 2000 Finds Over $30 Million in Excessive Charges During Foreign Exchange Transactions

State Treasurer Steven Grossman today announced the results of an expanded "look-back" report that found the state pension fund has been overcharged $30.5 million by BNY Mellon since 2000 during foreign currency exchange transactions. An initial audit going back to January 1, 2007 uncovered approximately $20 million in overcharges earlier this month.

"Given our initial findings, we wanted to take as comprehensive a look as possible at past foreign currency exchanges done on our behalf," said Grossman, who serves as the Chairman of the Pension Reserves Investment Management (PRIM) Board. "It's imperative that pension beneficiaries and taxpayers are treated fairly and that banks do not profit disproportionately at their expense."

The updated report found that BYN Mellon charged PRIM an average of nearly 33 basis points for non-negotiated foreign exchange transactions, while industry fees averaged 4 basis points. Costs were lower still when BYN Mellon was required to negotiate its price by PRIM managers, demonstrating its institutional capacity to execute foreign currency trades at a much lower rate. Foreign exchange transactions typically occur when investments generate or require foreign currencies. Grossman said that he and PRIM staff have initiated discussions to explore legal options.

The PRIM Board retained FX Transparency of Framingham, Massachusetts earlier this year to review the most recent four years of foreign exchange trades done on its behalf by BNY Mellon. This move followed several high-profile instances where pension funds in other states discovered similar overcharges, prompting several of them to launch remediation efforts. When PRIM discovered that it had been overcharged approximately $20 million since January 2007, it directed a review back to 2000.

The Massachusetts PRIM Board has approximately $50 billion of assets under management. The fund grew by 13.6 percent during 2010.

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