California Attorney General Sues State Street

SACRAMENTO, Calif. (TheStreet) -- California's attorney general has filed suit against State Street(SST Quote), alleging that the bank committed "unconscionable fraud" by illegally overcharging the state's pension funds when executing foreign-currency trades.

In a rather colloquial use of phrasing, California's attorney general, Edmund G. "Jerry" Brown, said in a statement, "This is just the latest example of how clever financial traders violate laws and rip off the public trust."

The state is seeking to recover $200 million from the Boston bank. California says State Street began taking illegal fees and surcharges in 2001.

Unsealed Tuesday in Sacramento Superior Court, the suit is based on evidence provided by whistleblowers, who claim that State Street "added a secret and substantial mark-up to the price of interbank foreign currency trades" when dealing on behalf of California's two huge pension funds, the California Public Employees' Retirement System, better known as CalPERS, and the California State Teachers' Retirement System, or CalSTRS.

Under the California False Claims Act, which is similar to the federal version, private citizens acting as whistleblowers can receive a percentage of the awards recovered by plaintiffs in successful lawsuits.

Brown, the former California governor and erstwhile Democratic presidential candidate, began an independent investigation into State Street's dealings after a whistleblower group calling itself Associates Against FX Insider Trading filed its own suit against the bank in 2008.