Conn. AG hires consultant to review potentially improper foreign exchange costs

    Attorney General George Jepsen

    Lawyers for the state are reviewing more than a decade of foreign-exchange transactions on behalf of the its pension funds to determine whether the it should sue to recover improper charges.

    Attorney General George Jepsen engaged a Darien-based consulting firm last month to aid in the review of transactions for the state’s $24 billion pension fund, including a $9 billion international portfolio.

    As a custody bank, State Street handles transactions for institutional investors like banks and pension funds, including Connecticut’s fund.

    State Street, based in Boston, is being sued by the Arkansas Teachers Retirement System and California to recover alleged overcharges related to foreign-exchange transactions and is under investigation by the Securities and Exchange Commission, according to Bloomberg.

    Bank of New York Mellon is facing lawsuits on similar grounds.

    “We are aware of public reports questioning how much State Street charges its custodial customers on foreign exchange transactions,” Jepsen said. “State Street handles some foreign exchange transactions for the state. We are reviewing the matter. At this point we have reached no conclusions.”

    “As we have previously stated, State Street continues to cooperate with inquiries regarding our indirect FX services and vigorously defend the litigation that has been commenced against us,” a spokesman for the company said. “The State of Connecticut remains a valuable client of State Street and we will not otherwise comment on our relationship with the state.”

    DeRosa Research & Trading won the state contract to assist with the internal review of 11 years of foreign-exchange transactions. The contract is worth up to $300,000.

    Depending on DeRosa’s findings, the firm may be required to testify as an expert witness in a suit filed by the state.

    DeRosa founder David DeRosa will oversee the project for his firm, billing $450 an hour for his time. Other personnel will bill between $175 and $300 an hour.