Calif. Sues Bank, Alleges Fraud

RENEE MONTAGNE, host:

Here in California, a major bank is accused of bilking the state's two biggest pension funds. Attorney General Jerry Brown filed a lawsuit yesterday against State Street Bank and Trust of Boston. He says the company cost the pensions millions of dollars, as NPR's Richard Gonzales reports.

RICHARD GONZALES: California was using State Street Bank and Trust to make foreign currency trades for the California Public Employees Retirement System and the Teachers' Retirement System. But Attorney General Jerry Brown says the bank was cheating California by charging the highest possible rates on thousands of daily currency trades.

State Street was contractually obligated to charge a lower rate. Brown accused the firm of unconscionable fraud.

Mr. JERRY BROWN (Attorney General, California): They bought at a lower price than they told the state of California by concealing the date at which the trade was executed. So again, this is the white collar kind of rip-off that is far more subtle and sophisticated than street robbery or other kinds of normal theft, but it has the same impact.

GONZALES: Brown says State Street overcharged the California pension funds by more than $56 million over eight years. He is seeking damages and penalties in excess of $200 million. The attorney general's investigation follows another lawsuit filed by a group of whistleblowers in 2008 which made similar allegations.

A spokesperson for State Street Bank and Trust denied the charges and vowed to fight the lawsuit.

Richard Gonzales, NPR News, San Francisco. Transcript provided by NPR, Copyright National Public Radio.