Bank of New York Mellon Corp., which administers the state pension fund assets, has agreed to cut its fees by $15.5 million over nine years to settle complaints that it overcharged Massachusetts on foreign currency conversions.
Under the agreement announced Monday, the custodial bank also said it would pay the state $100,000 to reimburse the secretary of state’s office for its investigation. Secretary of State William Galvin previously alleged that BNY Mellon overcharged the state by $29 million for converting international investments into dollars over the past decade.
Both BNY Mellon and State Street Corp., the nation’s two largest custodial banks, have been dogged by allegations for years that they secretly gouged clients on foreign currency conversions, potentially pocketing billions of dollars in extra fees.
BNY Mellon did not admit any wrongdoing and simply described the deal as a successful contract negotiation. The state agreed to sign a new five-year contract with BNY Mellon starting in July 2014 with the option to extend the deal for up to two more years. Most of the fee reductions will come in future years.
“We’re pleased to reach this commercial agreement with [the state pension board] PRIM, which allows us to continue our longstanding relationship with them,” said BNY spokesman Kevin Heine.
Galvin called the agreement a “good result for all parties.’’ State Treasurer Steven Grossman, who chairs the Pension Reserves Investment Management Board, said the settlement helps the state avoid a costly lawsuit.
“Had we pursued this in litigation,” Grossman said, “it would have taken a great deal of time and tremendous investment in legal fees with no guarantee of success.”
The agreement resolves an administrative complaint first brought by Galvin against BNY Mellon in 2011. The complaint alleged that BNY Mellon charged the state Pension Reserves Investment Management Board on every foreign currency conversion, while falsely stating that the transactions were free.
The state pension fund also said it will also turn over $750,000 of the savings through the fee reductions to a whistle-blower, former BNY Mellon employee Grant Wilson, who helped bring the matter to light.
Wilson teamed up with Harry Markopolos to nudge several states to launch investigations against State Street and BNY Mellon. Markopolis, the Whitman investigator who warned federal securities officials about Bernard Madoff’s Ponzi scheme, has said the two companies earned billions of dollars in excess fees by secretly overcharging public retirement funds for foreign currency transactions.Beth Healy of the Globe staff contributed to this report. Todd Wallack can be reached at firstname.lastname@example.org. Follow him on Twitter @twallack.