Charlie Don't Surf at BNY Mellon
The group alleges that Bank of New York Mellon was overcharging pension funds and falsifying currency trades on a system called 'Charlie'—to the tune of at least $20 million. Various states —and their respective attorneys general—are now getting involved.

Mellon is an enormous bank, with a market capitalization of nearly $40 billion, but one that tends to stay away from the spotlight.

In 2009, and again in 2010, as the financial crisis raged, Bank of New York Mellon was voted the safest bank in the United States by global finance magazine. Global Finance also ranked Bank of New York Mellon as the number one custody bank in the world.

Custody banking is supposed to be a very boring business. Custodian banks principally hold assets in safekeeping, as well as to arrange settlement for securities transactions, and to provide certain administrative and reporting functions.

So allegations of this nature would be unwelcome news for any bank—but it may be especially bad for Mellon, given the reputation they've so carefully cultivated.

The precise mechanics of the trading scheme are somewhat complicated, but what they amount to is allegations that Bank of New York Mellon exchanged currency at a far more favorable rate than their clients ultimately received in the trade, creating a windfall of ill-gotten gains. Falsified reports were then allegedly created to obscure the timing, rates, and profits from the trade.

What's more, profits from foreign-exchange in Mellon's asset servicing unit represent a significant percentage of their revenue.

"Bank of New York Mellon generated 2009 revenue of $4.26 billion for its asset-servicing unit, including $757 million from foreign-exchange and other trading activities, the latest full-year figures available. The $4.26 billion figure was more than half of the bank's total 2009 revenue, though the 2009 total included an unusual one-time item. Asset servicing typically accounts for about a third of the bank's revenue."

It's too early to say how this story will shake out—but it's not good news for one of the most conservative players in the bank sector.

Shares of BNY Mellon were trading fractionally lower at the time this story went to post.

______________________________________________

Questions? Comments? Email us atNetNet@cnbc.com

Follow NetNet on Twitter @ twitter.com/CNBCnetnet

Facebook us @ www.facebook.com/NetNetCNBC