Full opinion text
OPINION LEWIS A. KAPLAN, District Judge. Table of Contents Background.....................................................................443 I. Facts...............................................................443 A. Overview of Standing Instruction Trading..........................444 B. Representations About Standing Instruction Pricing.................444 1. Best Execution..............................................444 2. Other Representations........................................446 C. Pricing Practices................................................447 D. Effects on Bank.................................................448 II. Procedural History...................................................449 Discussion......................................................................450 I. Legal Standard......................................................450 II. “Affecting” a Financial Institution .....................................451 A. Claim Against Nichols............................................451 1. “Victimizing”................................................451 a. Text....................................................451 b. Statutory Structure ......................................452 c. Legislative History and Purpose ...........................454 2. “Indirect Harm” by a Third Party..............................456 3. Sufficiency of the SAC........................................457 B. Claim Against BNYM............................................461 III. Sufficiency of Fraud Allegations.......................................463 A. Basic Principles.................................................463 B. Representations Relating to Quality of Traditional Standing Instruction Pricing.............................................465 1. “Best Execution” ............................................465 a. Materially False or Misleading.............................465 b. Intent to Deceive.........................................467 c. Intent to Harm..........................................474 2. Generally Reflecting Interbank Rate at Time of Execution........475 3. Free of Charge and Minimizing Costs ..........................476 4. “Best Rate of the Day” .......................................477 C. Netting........................................................478 D. Same Pricing ...................................................480 1. Non-ERISA Clients..........................................481 2. ERISA Clients..............................................481 E. Fraudulent Omissions............................................482 1. Superior Knowledge..........................................482 2. Heightened Level of Trust....................................483 Conclusion......................................................................483 The United States brings this civil fraud suit against defendants The Bank of New York Mellon (“BNYM” or the “Bank”) and one of its employees, David Nichols. The second amended complaint (“SAC”) alleges that defendants engaged in a scheme to defraud the Bank’s custodial clients by representing, among other things, that the Bank provided “best execution” when pricing foreign exchange (“FX”) trades under its “standing instructions” program. In Southeastern Pennsylvania Transportation Authority v. Bank of New York Mel-Ion Corp. (“SEPTA ”), this Court held that one such custodial client had stated legally sufficient claims for breach of contract and breach of fiduciary duty based on similar alleged misrepresentations. This matter is before the Court on defendants’ motions to dismiss the SAC for failure to state a claim upon which relief may be granted. The government sues under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Section 951 of that statute permits the Attorney General to bring an action for civil penalties against anyone who violates any of a number of criminal statutes, including those prohibiting mail and wire fraud when the fraud is one “affecting a federally insured financial institution.” Although Section 951 has existed for nearly 24 years, it seems not to have been applied much. In fact, this decision marks the first occasion upon which a court has been called to interpret the meaning of the phrase “affecting a federally insured financial institution” under that section. In particular, this case presents the following question of first impression by any court: whether a federally insured financial institution may be held civilly liable under Section 1833a for allegedly engaging in fraudulent conduct “affecting” that same institution. This question currently is presented in two other cases in this district. BNYM contends that it cannot be held liable on such a theory, arguing that the affected institution must be the victim of or an innocent bystander to the alleged fraud, not the perpetrator. The Court disagrees. In passing FIRREA, Congress sought to deter fraudulent conduct that might put federally insured deposits at risk. Where, as alleged here, a federally insured financial institution has engaged in fraudulent activity and harmed itself in the process, it is entirely consistent with the text and purposes of the statute to hold the institution liable for its conduct. Regarding the merits of the fraud allegations, the complaint generally suffices to allege the principal claim here — that defendants fraudulently misrepresented their standing instruction service as providing best execution. As in SEPTA, the complaint plausibly alleges that the Bank priced its trades inconsistent with the industry understanding of the term, rendering defendants’ representations at least misleading. While the government here has a burden to plead facts giving rise to a strong inference of fraudulent intent, the complaint does so. It contains allegations that, if proven, would permit the conclusion not only that Bank employees knew their practices were inconsistent with an industry understanding of “best execution,” but also took active steps to mislead their clients about how trades were being priced. This said, while the government adequately pleads a number of other alleged misrepresentations closely related to the notion of best execution, its theories of fraud on some other grounds are insufficient. Accordingly, defendants’ motions to dismiss are granted in part and denied in part as detailed below. Background I. Facts The Court briefly provides an overview of BNYM’s standing instruction, program and the central representations and practices at issue in this case. Additional allegations, particularly those pertaining to the government’s theory of fraudulent intent, are introduced in the discussion section as they become relevant. Further details about the standing instruction program from one customer’s perspective may be found in this Court’s decision in SEPTA. A. Overview of Standing Instruction Trading BNYM is one of the world’s largest custodial banks, holding on behalf of its clients domestic and international financial assets, including currency and securities. Its clients often need to engage in currency transactions in connection with the assets BNYM holds on their behalf. This occurs, for example, when a client earns dividends or other foreign currency income from its foreign assets or buys or sells a security in a transaction denominated in a foreign currency. BNYM has provided certain foreign exchange services to these custodial clients in two principal ways. First, the client may contact BNYM directly and execute a currency trade with BNYM at a price agreed upon at the time. Second, under its standing instruction service, BNYM automatically provides currency exchange as the needs arise. The standing instruction service relieves clients from having to negotiate individual FX trades in such circumstances, as BNYM handles the trade “from start to completion,” setting the price itself. Only after the fact does the client learn the rate at which the exchange was executed. B. Representations About Standing Instruction Pricing This case is about how the Bank set its prices for standing instruction trades. As this Court discussed in greater detail in SEPTA, the principal policies and procedures of the standing instructions program provided limited information about BNYM’s pricing practices. They noted that the pricing would be no worse than certain prices set forth in a daily schedule each morning and deviate no more than three percent from the relevant interbank rate — the latter guarantee apparently to ensure compliance with ERISA requirements. The procedures did not state how BNYM would price the transactions aside from fulfilling these two guarantees, nor did they state expressly that BNYM otherwise was free to price the trades however it wished. 1. Best Execution The SAC alleges that defendants filled this void through various representations to clients conveying the impression that BNYM in fact was providing its clients the best prices it could obtain in the market at the times it executed the standing instruction trades. The most important of these alleged representations was “best execution.” “Best execution” allegedly is a term with an “industry definition” and is “commonly understood to mean that the client receives the best available market price at the time that the currency trade is executed.” The SAC alleges that the Bank used this term on its website, in its responses to clients’ requests for proposals (RFPs), and in other communications with clients. In particular, the SAC alleges that BNYM’s website — to which clients were referred — stated that one of the “benefits” of the service was “ ‘FX execution according to best execution standards.’” The website stated also, “‘Operationally simple, free of charge, and integrated with the client’s activity on the various securities markets, FX standing instruction is designed to help clients minimize risks and costs related to the foreign exchange and concentrate on their core business.’” In addition, defendant David Nichols, a managing director and the head of products management at BNYM, drafted a three-paragraph “standard comment” (the “Standard Comment”) on best execution that was disseminated to the Bank’s clients. In light of the alleged industry understanding of the term, the SAC alleges that the Standard Comment furthered the impression that the Bank was providing the best available market price through the following statements: • “ ‘Understanding the fiduciary role of the fund manager, it is our goal to provide best execution for all foreign exchange executed in support of our clients’ transactions.’” • “ ‘[W]e price foreign exchange at levels generally reflecting the interbank market at the time the trade is executed by the foreign exchange desk.’” • “ ‘Best execution encompasses a variety of services designed to maximize the proceeds of each trade, while containing inherent risks and the total cost of processing.’” • “ “We also support post-trade analysis comparing our trade execution to recognized industry benchmarks to assist the fund manager in demonstrating that the execution of each trade was consistent with the goal of maximizing the value of the client portfolio under the particular circumstances at the time.’” The Standard Comment was provided in responses to requests for proposals (“RFPs”), responses to client inquiries, and was submitted also to a trade magazine. Other RFP responses contained different language that, the SAC alleges, strengthened the impression that the Bank provided .best execution in accordance with the alleged industry definition of the term. In one response, the Bank stated that it “ ‘ensure[d] best execution’ ” by, among other things, “ ‘actively engaging] in making markets and taking positions in numerous currencies so that we can provide the best rates for our clients.’” It stated also, “ ‘Clients benefit from our attractive rates because we aggregate all client income in any given currency to obtain the “best rate of the day.” That “best rate of the day” is applied to all of the income conversions that we execute for that day, regardless of amount.’” The SAC alleges that the representations set forth above generally were made by the Bank from 2000 through 2011 and by Nichols from 2004 to 2011. 2. Other Representations Separate from these various representations about the quality of standing instruction pricing in the ordinary course, the Bank allegedly made representations about “netting.” Netting of trades means that to the extent a client may need to buy and sell the same currency on the same day, the bank aggregates those needs to calculate a single amount of the currency that the client would buy or sell that day, and then execute only that one trade with the client. Netting can result in significant cost savings for the client, because the client does not pay spreads on transactions that otherwise would cancel out. The SAC alleges that BNYM’s website stated that standing instruction clients benefitted from “ ‘[aggregation and netting of trades based on guidelines tailored to clients needs.” Moreover, a policy and procedures document from BNYM’s predecessor stated that “ ‘Currency purchases and sales effected pursuant to these Procedures in the same currency and having the same trade and value date may be netted for pricing purposes within a customer account.’” The SAC alleges that the predecessor represented to one particular client, the Florida Retirement System Trust Fund (“FRSTF”), that “‘[o]ur system automatically nets foreign exchanges when trades are routed to our trading desk.’” Finally, defendants allegedly represented that all standing instructions clients received the same pricing. In particular, the Bank had a policy for its ERISA clients that provided that the “ ‘terms of FX transactions with any [ERISA plan] shall not be less favorable to the [ERISA plan] than the terms offered by BNY to unrelated parties in a comparable arm’s length FX transaction.’” This policy mimicked a statutory requirement necessary to permit transactions between BNYM and- ERISA plans. Defendants emphasized this point to various clients in other communications, with BNYM telling one that “ ‘all clients in our SI [standing instruction] program are executed at the same rate (We are required to do this to fulfill ERISA requirements,’ ” and Nichols telling another that “ ‘all clients receivfed] the same spot price.’” C. Pricing Practices Allegedly contrary to the impression conveyed by the above representations, BNYM priced standing instruction trades as follows. It collected standing trade requests for various currencies throughout the trading day until the early afternoon (around 1:30 p.m. Eastern time). At that time, it determined at an aggregate level the amount of each currency it needed to buy or sell in order to accommodate all of its clients requests, and executed the necessary transactions on its own behalf in the spot market. Later in the afternoon (typically around 4:00 p.m. Eastern time), BNYM assigned prices to the standing instructions trades it would execute with its clients. To do so, the Bank examined the full range in which a given currency had traded in the interbank market that day and priced each standing instruction trade with a client at the rate within that range least favorable to that client For example, BNYM might sell euros to a client at the highest price at which the euro had traded that day, while buying euros from another client at the lowest price at which the euro had traded. The SAC alleges that BNYM frequently applied a “slight modifier” so that the rate charged was not quite the worst intraday interbank rate. The SAC alleges that the customer later learned the exchange rate at which its trades occurred. The Bank did not provide time stamps — that is, information about when in the day a particular trade was executed. The customer received a monthly report providing information about their currency trading, but this monthly report did not indicate which trades were negotiated directly and which occurred under standing instruction. As to netting, whether the Bank actually netted customer trades allegedly varied depending on which trading desk executed the order. While the New York and Brusseis trading desks did net trades for the clients’ benefit, the Pittsburgh trading desk allegedly did not. Rather, the Pittsburgh trading desk allegedly priced the larger side of the transaction (e.g., the purchases if the client was a net buyer of the currency that day, and the sales if the client was a net seller) at or near the worst interbank rate of the day, and then priced the opposite side of the transaction at a different price at least a half percentage point apart. Finally, the Bank allegedly did not provide the same pricing to all standing instruction clients. Instead, when a client complained about the pricing it had received, when BNYM had reason to believe that the client was likely to scrutinize its pricing more carefully, or when the client was of “ ‘substantial market stature,’ ” BNYM switched the client to a benchmarking pricing model for standing instruction trades. Under benchmarking, BNYM charged only a fixed, specific price spread to the standing instruction trade on top of a particular industry benchmark rate published that day, resulting in much better pricing to such clients than others received. The SAC alleges also that the Bank’s netting practices resulted in different prices to different clients, as the pricing varied depending on which trading desk executed a particular client’s transactions. D. Effects on Bank The SAC alleges that BNYM’s pricing practices permitted it to earn “enormous” spreads on standing instruction trades compared to the “modest” spreads it earned in negotiated transactions. Thus, a Bank analysis allegedly concluded that from January to November 2009, its spreads on standing instruction trades were approximately 22.33 basis points, while transactions negotiated by phone call provided spreads of 2.80 basis points and electronic transactions provided spreads of 1.18 basis points. Standing instruction trades in 2009 allegedly represented approximately 12 percent of the Bank’s overall FX trading volume, but accounted for approximately 69 percent of its FX profits. The SAC alleges that BNYM’s sales margins for its top 200 standing instructions clients totaled over $1.5 billion from 2007 to 2010. Over time, and particularly after a lawsuit against State Street Bank alleging similar practices was made public in late 2009, BNYM’s clients became more interested in BNYM’s pricing practices, and a number complained about the pricing they were receiving. These matters came to a head in 2011, when various lawsuits were filed by customers, investors, and others, and the Bank disclosed further information about its pricing practices, including that it “ ‘tend[ed] to price our purchases of currencies at the low end of the daily interbank range, and to price its sales at the high end, regardless of trade size.’” As clients have learned more about the Bank’s practices, the SAC alleges, the Bank has suffered various negative consequences. It asserts that numerous lawsuits have been filed against the Bank in both state and federal courts, which collectively expose it “to billions of dollars in potential liability, ongoing and mounting legal expenditures, as well as immediate and ongoing reputational harm which has and could continue to affect its stock price.” The SAC further alleges that the revelations have affected the Bank’s FX business. Some clients have become dissatisfied with BNYM, and some have left it altogether. Of those who have stayed, a number have switched to a defined spread or benchmarking pricing model, which provides lower margins. The corresponding reduction in FX revenue, inter alia, allegedly caused BNYM’s credit rating to be downgraded by Moody’s in March 2012. II. Procedural History The initial complaint in this case was filed in October 2011 and- sought civil penalties under FIRREA as well as an injunction injunctive relief under the fraud injunction statute. In January 2012, the parties entered into a partial settlement pursuant to which the government dismissed its claim for injunctive relief and BNYM agreed, inter alia, no longer to use the terms “best execution,” “free,” or “netting” in describing standing instructions, no longer to represent that all standing instruction clients receive the same pricing, and to describe its pricing practices on its website. The SAC was filed in June 2012. Count One alleges that BNYM violated the mail and wire fraud statutes by fraudulently representing that the standing instruction service (1) provided “best execution,” (2) “priee[d] foreign exchange at levels generally reflecting the interbank market at the time the trade is executed by the foreign exchange desk,” (3) was “free of charge” and “minimiz[ed] costs,” (4) provided “ ‘the best rate of the day,’ ” (5) provided “netting,” (6) provided the same pricing - to all standing instruction clients and (7) used the interbank range to price certain restricted currencies. In addition, the SAC alleges that the Bank (8) fraudulently failed to disclose further information about its pricing practices. BNYM is alleged to be liable civilly under 12 U.S.C. § 1833a. Count Two of the SAC alleges that Nichols violated the mail and wire fraud statutes and is liable under Section 1833a with respect to (1), (2), (4), (6), and (8). As required by Section 1833a, the SAC alleges that defendants’ fraud affected a federally insured financial institution — to wit, BNYM itself, as well as a number of other clients that are federally insured financial institutions. Defendants move to dismiss, contending that the SAC fails to allege any federally insured financial institution was affected by the alleged fraud under the meaning of Section 1833a and that the allegations fail sufficiently to plead claims of fraud against either of them. Discussion I. Legal Standard To survive a Rule 12(b)(6) motion, a plaintiff must plead facts sufficient “to state a claim to relief that is plausible on its face.” A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” In resolving a Rule 12(b)(6) motion, the Court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in the plaintiffs favor. It may “rely upon documents attached to the complaint as exhibits and documents incorporated by reference in the complaint.” “Moreover, when a plaintiff chooses not to attach to the complaint or incorporate by reference a document upon which it solely relies and which is integral to the complaint, the court may nevertheless take the document into consideration in deciding the defendant’s motion to dismiss, without converting the proceeding to one for summary judgment.” Finally, the SAC’s allegations of fraud are subject to the heightened pleading requirements of Fed.R.Civ.P. 9(b), discussed below. II. “Affecting ” a Financial Institution A. Claim Against Nichols Section 1833a provides that “[w]ho-ever violates any provision of law to which this section is made applicable by subsection (e)” shall be civilly liable in an action for civil penalties brought by the Attorney General. Section 1833a(c) in turn sets forth the applicable violations: “(c) Violations to which penalty is applicable “This section applies to a violation of, or a conspiracy to violate “(1) section 215, 656, 657, 1005, 1006, 1007,1014, or 1344 of title 18; “(2) section 287, 1001, 1032, 1341 or 1343 of title 18 affecting a federally insured financial institution; or “(3) section 645(a) of title 15.” Defendants contend that Nichols cannot be liable under Section 1833a because the SAC fails sufficiently to allege that BNYM was “affect[ed]” as that term should be understood. They advance two principal alleged limits on the construction of the “affecting” clause which, if adopted, would preclude liability for Nichols on this theory. First, they contend that “affecting” means “victimizing,” thus requiring that the fraud be “directed at” the federally insured financial institution, in this case, BNYM. Second, they suggest that the “affecting” clause can mean “indirectly harm[ingj,” but only insofar as the alleged harm is caused solely by persons other than the federally insured financial institution. Neither contention is persuasive. The SAC sufficiently alleges that BNYM was affected to permit liability as to Nichols. 1. “ Victimizing ” a. Text The Court begins, as it must, with the text. “Affect” means “to act upon” as in “to produce an effect ... upon,” “to produce a material influence upon or alteration in,” or possibly “to have a detrimental influence on.” None of these definitions comes even close to defendants’ notion that “affecting” may mean only “victimizing.” If Congress had wanted to limit civil penalties to cases in which the financial institution was the victim, it obviously could have done so; instead, it chose a singularly broad term. The Second Circuit made precisely this point in United States v. Bouyea, when construing the term “affects a financial institution” in a different provision of FIRREA regarding statutes of limitation, Section 961(l). It rejected the argument that a financial institution was not affected when its subsidiary, but not the institution itself, was defrauded, noting that the “ ‘argument would have more force if the statute provided for an extended limitations period where the financial institution is the object of fraud. Clearly, however, Congress chose to extend the statute of limitations to a broader class of crimes.’” While the holding of Bouyea was relatively narrow, courts within this district also construing FIRREA Section 961(l) persuasively have extended its reasoning to cases much like this one. In each, the court rejected a defendant’s argument that a financial institution participating in a fraudulent scheme could not be “affected” because it was not the victim of the scheme. As one such court noted, the limitation defendants seek to impose simply is “absent from the plain language of the statute.” The text of the statute supports the government. b. Statutory Structure In the absence of textual support, defendants urge this Court to read in a “victimizing” limitation from the structure of Section 1833a. The attempt fails. If anything, the structure of the section further bolsters a broad understanding of the term. i. Section 1833a(c)(1), (3) As defendants point out, the violations enumerated in Section 1833a(c) fall into two principal categories: (a) those that apply without any additional limitation (embodied in Section 1833a(c)(1), (3)) and (b) those .that apply only if the violation is one “affecting a federally insured financial institution” (embodied in Section 1833a(c)(2)). Defendants contend each violation in category (a) inherently requires victimization of a financial institution, and so the phrase “affecting a federally insured financial institution” was added in category (b) to ensure that the statute required victimization of them in all cases in which the statute created liability. Defendants’ argument misconstrues the statute. In fact, a number of the violations in category (a) do not require that any financial institution be victimized. For example, violations of 18 U.S.C. §§ 1007, 1014, which proscribe inter alia the making of a false statement with the purpose of influencing an action by various regulators, including the FDIC and the Federal Housing Administration, are predicates to Section 1833a liability yet may occur without victimizing a financial institution. Another, 18 U.S.C. § 1005, makes liable anyone who inter alia makes false entries in financial books with intent to deceive federal regulators, or with intent to defraud any individual or company, including but expressly not limited to the financial institution itself. Thus, if an officer cooks an institution’s books in order to deceive the FDIC or other regulators, to get mortgage insurance proceeds for the institution from mortgages guaranteed in part by the FHA, or even just to defraud a customer, civil penalties may be imposed without any need to show that the institution was victimized. Indeed, there is nothing in the text foreclosing the possibility that an institution could participate in and benefit from such a crime. If anything, the violations in category (a) suggest that Congress, in passing Section 1833a, was not necessarily concerned only with harm to financial institutions — let alone only their victimization — as it was with the presence of criminal activity in matters meaningfully involving financial institutions, however that activity may affect them. ii. Section 1833a(c)(2) The violations in category (b) other than mail and wire fraud — that is, those that apply only when the violation is one “affecting” a federally insured financial institution — are instructive as well. Such violations include 18 U.S.C. § 287, which proscribes the making of false claims against the United States government. Surely, the construction of “affecting” that defendants advance here would apply equally to this violation. But it is difficult to imagine how false claims against the United States government could victimize a financial institution — -rather, the victims of such a crime plainly would be the taxpayers from whom the violator was hoping to obtain money improperly. Even if an example could be constructed in which a false claim against the United States somehow victimized (as opposed to having some collateral effects on) a financial institution, it would be far more natural to read the combination of Section 287 and “affecting” not to be limited only to such narrow circumstances. Rather, Section 287 is a general false claims statute, applying to claims on the United States government in any number of areas. By limiting the applicable false claims to those “affecting a financial institution,” Congress appears to have meant to restrict coverage of Section 1833a to those false claims against the government meaningfully involving financial institutions — that is, being in the financial industry. Indeed, that “affecting” might mean something closer to “involving” is supported by the heading of the subtitle. Section 1833a came from Section 951 of FIRREA, which was the only section of Subtitle E of Title IX of FIRREA. Subtitie E was entitled “Civil Penalties for Violations Involving Financial Institutions.” c. Legislative History and Purpose Finally, defendants argue that the legislative history salvages their construction of “affecting” as “victimizing,” contending that it shows that Congress was concerned exclusively with “shield[ing]” institutions from frauds committed at their expense. Where, as here, the text and structure do not support defendants’ construction, the Court cannot and should not rely on legislative history to take a different view. Nevertheless, the legislative history does not support defendants’ position in any event. FIRREA was passed in direct response to the 1980’s savings and loan crisis. According to committee reports, Congress sought to control the “outright fraud and insider abuse” that had pervaded the thrift industry and that it found to have been a significant contributor to the crisis. They expressed concern both about fraud committed by outsiders against financial institutions and about fraud committed by insiders — that is, officers and managers of the thrifts situated similarly to Nichols. Defendants are correct that the reports’ discussions of insider fraud focused primarily on insiders using their positions to secure personal gain at the expense of the institution. This involved both direct embezzlement of funds and, more often, crimes such as misapplication of bank funds that “fraudulently put[] the bank’s money at risk through bribes, kickbacks, or self-dealing.” By seeking personal gain when obligated to act in the institution’s interest, these insiders victimized their institutions in ways quite different from the allegations here. But that is not the whole story. The very House report on which defendants considerably rely points out that at least some of the fraud at issue was not due to thrift officers seeking to victimize their banks, but rather to save them without any intent to achieve personal gain: “[A]s the economy turned bad in the early 1980’s and as many speculative ventures ... went sour, normally honest bankers (including thrift insiders) have resorted to fraud or unsafe and unsound practices in efforts to save a battered institution. In those cases an incentive existed to turn an unhealthy financial institution around by garnering more deposits and then making even more speculative investments, hoping to ‘make it big.’ Sometimes there was no personal enrichment, just misapplication of funds to turn the situation around.” The committee went on to quote a savings and loan president who discussed the many problems with managers of failed thrifts and noted that “ ‘[ijnstead of attempting to remedy the problems which were so apparent, they spent all of their efforts in proposing intricate schemes to appear to aid in maintaining the equity at a proper level.’” Thus, Congress was addressing not only frauds by insiders who were trying to harm their employers, but also frauds by insiders seeking to benefit their employers — perhaps through deception of auditors or regulators. In cases of the latter sort, the fraudulent practices cannot be understood to be directed at, or victimizing, the thrifts — after all, the thrifts themselves could have been charged with crimes in those very instances. In fact, the legislative history shows who Congress truly believed were the victims of the S & L crisis and whom Congress sought to protect through FIRREA: S & L depositors and federal taxpayers put at risk by the thrifts’ fraudulent behavior. As the government points out, the crisis bankrupted the Federal Savings and Loan Insurance Corporation, resulting in a taxpayer-funded bailout that some projected at the time as exceeding $100 billion. Ensuring that taxpayers would not need to bail the industry out again in order to protect the funds of depositors is consistent not only with seeking to prevent fraud perpetrated against the financial institutions, but also with deterring or punishing fraud which occurs as a result of insiders’ misguided efforts to benefit their institutions, particularly insofar as those efforts ultimately go on to expose the institutions to new and harmful risks. The text of FIRREA itself makes this focus on depositors even clearer in this particular context. It sets forth as one of the general purposes of the statute “strengthening] the civil sanctions and criminal penalties for defrauding or otherwise damaging depository institutions and their depositors." This confirms that Congress was concerned with more than just protecting financial institutions themselves, but also with preventing the “damaging” of “depositors.” While defendants cite to this purpose and contend that it supports their position, they entirely ignore the latter reference. Thus, the legislative history does not support defendants’ contentions. The Court rejects defendants’ contention that Nichols must have victimized BNYM in order for his alleged fraud to have “affected” it under Section 1833a. 2. “Indirect Harm” by a Third Party Apparently recognizing the weakness of their “victimizing” formulation, defendants leave open the possibility that “affecting” may encompass indirectly harming an institution, so long as the harm is caused by actions of third parties and not the institution itself. Thus, defendants suggest that even if the Bank need not have been the victim of Nichols’ alleged fraud, it must have been an innocent bystander, not a willful participant in the scheme. The point merits little discussion. Courts repeatedly have rejected precisely such a contention in the FIRREA Section 961(Z) context. As the Seventh Circuit has recognized, “the mere fact that participation in a scheme is in a bank’s best interest does not necessarily mean that it is not exposed to additional risks and is not ‘affected.’” Indeed, it would be entirely unnatural to make determination of whether a bank was “affected” by a scheme turn on whether it participated in it. These are two entirely different questions. The former concerns the effects on the institution that proximately flow from the charged scheme; the latter relates to the institution’s culpability in the scheme in the first instance. Accordingly, accepting defendants’ construction would yield absurd results. Consider two eases: (1) a junior bank employee, unbeknownst to the employer, engages in a fraudulent scheme to defraud the bank’s customers and thereby increase his own compensation, but when the scheme comes to fruition, customers desert the bank and it fails; and (2) the same scheme occurs with the same results, but in this case the bank helps facilitate the scheme in order to increase its profits. Defendants’ interpretation of the statute would suggest that the employee “affected” the institution in the first case but that the employee did not do so in the second, even though the scheme had identical effects on the institution in both. In short, the Court declines to conclude that an institution cannot be affected by a fraud solely because it participates in it. 3. Sufficiency of the SAC Having rejected defendants’ two proposed limiting constructions of the “affecting” clause, the Court turns to whether the SAC sufficiently alleges that BNYM was affected by Nichols’ alleged fraud. As the foregoing discussion suggests, there is at least some support for the proposition that BNYM’s alleged participation in the fraud, along with its garnering of substantial profits from it, itself is sufficient to allege that BNYM was affected. But the parties have cited no case, nor is the Court aware of any, as to whether a direct but positive effect alone is sufficient to “affect” a financial institution under any of the statutes using this term. This Court need not be the first. The SAC alleges that BNYM was affected negatively in a number of ways. It alleges that the scheme directly has caused BNYM legal expenditures and exposed it to considerable legal exposure through the many cases pending before this Court and others in state court. It alleges also that the scheme has damaged BNYM’s business prospects by prompting the departure of a number of clients, by forcing BNYM to accept a less profitable business model due to increased scrutiny of custodial FX services, and by harming BNYM’s reputation. These allegations are sufficient. Courts regularly have concluded that a fraud affects an institution by embroiling it in costly litigation, whether because the fraud causes actual losses to the institution through settlements and attorney’s fees or because it exposes the institution to realistic potential legal liability. Actual legal expenditures are tangible costs to the Bank that easily fall within the ambit of the term “affecting.” That liability exposure is sufficient finds support in persuasive holdings that a bank can be “affected” when a scheme exposes the bank to “a new or increased risk of loss,” even without a showing of actual loss. The SAC sufficiently alleges here that BNYM has incurred actual losses in attorney’s fees and been exposed to a realistic prospect of legal liability as a result of the fraud. Defendants contend that basing effects on litigation costs and exposure would be “illogical” because “[sjurely the commencement of meritless litigation should not trigger FIRREA penalties,” and the allegations here are unproven. The argument misses the point. First, if an employee commits fraud and thereby proximately causes a bank to incur actual legal expenses to defend itself from charges of misconduct, the employee’s fraud will have affected the bank even if the litigation against the bank were to prove meritless. Second, as discussed below, the SAC plausibly alleges that defendants committed fraud, rendering it plausible that the litigation against BNYM is not meritless at all and that it is exposed to real potential legal liability. The sufficiency of the SAC is supported further by its allegations regarding BNYM’s business prospects. It is difficult to fathom how BNYM could not have been affected when the scheme allegedly has led to the departure of a number of clients and to significant reputational harm for the Bank. Moreover, the SAC alleges that the scheme has forced BNYM to accept a less profitable business model, as clients now demand benchmarking of FX transactions and greater transparency. While it might not be sufficient to allege only that an institution no longer is receiving the allegedly fraudulent profits it had been deriving from the scheme, the SAC’s allegations permit the plausible inference that the harm has been more than that here. In particular, one may infer that BNYM, going forward, would have been able to make larger profits in standing instruction business had the alleged fraud never occurred than it will now make with respect to clients under benchmarking arrangements. In concluding that these alleged negative effects suffice, the Court is mindful that the effects must be “sufficiently direct” and that “there maybe some point where the influence a defendant’s wire fraud has on a financial institution becomes so attenuated, so remote, so indirect that ... .it does not in any meaningful sense affect the institution.” Here, the alleged negative effects are slightly removed from the underlying alleged scheme insofar as they manifested only when that scheme was revealed, not as it was ongoing. No matter. The touchstone of proximate causation is reasonable foreseeability, and it certainly was reasonably foreseeable that this alleged scheme, if uncovered, would result in these kinds of harms to the Bank. The Second Circuit takes a liberal view of the harms that are sufficiently direct to find an intent to defraud. The effects here easily pass muster. Finally, contrary to defendants’ contentions, the allegations of negative effects are not negated by BNYM’s allegedly significant profits accumulated during the course of the charged scheme. The negative effects of legal costs, potential liability, and reduced future profit opportunities are of a very different character than the profits BNYM accumulated. Those profits therefore reasonably cannot be understood to cancel out these losses and risks. As Judge Wood observed in reaching the same conclusion in a FIRREA Section 961(l) case, any attempt to compare the costs and benefits in this kind of situation would be “extremely complex and speculative” and “it is doubtful that Congress intended for a court to undertake such a difficult and indefinite exercise.” Moreover, offsetting the losses and risks with the profits “would perversely ineentivize financial institutions to participate in frauds in which they expect to earn a net benefit, which is behavior that the statute seeks to discourage.” Thus, “in several eases where financial institutions participated in and received benefits from schemes to defraud but also incurred actual losses, courts in this district have not required that the loss exceed the benefits received.” Where, as here, the government alleges negative effects of a wholly different character than the positive benefits of the fraud to the institution, the SAC need not allege that the negative effects in any sense outweighed the positive effects. For the foregoing reasons, the SAC sufficiently alleges that the fraudulent scheme “affected” BNYM, such that Nichols may be held liable under Section 1833a. B. Claim Against BNYM The Court turns now to the claim against BNYM. BNYM argues that, to whatever extent the legislative history may support liability for insiders, there is no indication that Congress sought to permit imposition of penalties on the institutions themselves. It contends that the government’s reading therefore would “turn[] FIRREA on its head, and would convert a statute designed to shield federally insured financial institutions from fraud by others into a weapon to impose punitive civil fines on federally insured financial institutions.” The distinction that BNYM divines from the legislative history is entirely absent from the text. Section 1833a(a) creates liability for “[w]hoever violates any provision of law to which this section is made applicable by subsection (c).” Subsection (c) then includes violations of mail and wire fraud provided only that the violation is one “affecting a federally insured financial institution.” But whether the alleged scheme “affected” BNYM is necessarily the same question whether we are assessing the potential liability of Nichols or the liability of BNYM itself. Thus, the only textual basis for distinguishing among those who can be held liable for committing that violation necessarily would be found in the word “whoever.” As the government argues, however, “whoever” is a broad term that the Code specifically defines as including any person, corporation, or other entity. Moreover, the Supreme Court has said that “whoever” should be “liberally interpreted.” There is simply no warrant in the text to carve out from the scope of the word “whoever” in Section 1833a(a) the affected financial institution described in Section 1833a(c)(2). BNYM complains that this reading requires the supposedly unnatural construction that BNYM is liable for “affecting itself’ and that such a reading of “affecting” is contrary to the term’s plain meaning. The Court disagrees. It is perfectly natural to say that one’s actions may affect oneself. For example, one might say “John’s criminal behavior is affecting his future career prospects” and “John’s criminal behavior [thus] is affecting him.” Certainly, the construction is not so awkward as to permit BNYM to conjure an exception to “whoever” that otherwise is absent from the text. BNYM further argues that the government’s reading is an end-run around on 12 U.S.C. § 1818(i), established also by FIR-REA, which sets forth a three-tiered penalty structure to be imposed on institutions and their employees by their assigned regulator for various violations and unsafe practices. BNYM contends that the “carefully crafted” structure of Section 1818(i) was meant to be the exclusive authority pursuant to which penalties may be imposed on financial institutions pursuant to FIRREA. There are several problems with this argument. First, it proves too 'much— employees of the institutions also are subject to penalties under Section 1818(i), and BNYM cannot credibly argue that employees are not subject to Section 1833a. Second, as discussed above, there is no doubt that institutions can be held liable under Section ,1833a by virtue of various crimes enumerated in Section 1833a(c)(1) which does not contain the limiting phrase “affecting a federally insured financial institution.” Third, as the government pointed out at oral argument, drafters of committee reports specifically contemplated the possibility of overlapping penalties under Section 1818® and Section 1833a and indicated that such penalties would be cumulative. Fourth, and most importantly, whether Section 1818(i) provides a separate penalty mechanism against institutions is entirely irrelevant when there is no basis in the text to exempt an institution from coverage under Section 1833a. Indeed, it is not hard to imagine why Congress would have created an overall regulatory scheme under 1818(i) permitting the assigned regulator to assess penalties against the institution and its employees for general violations and unsafe practices, while providing also in Section 1833a that the Attorney General may obtain civil penalties for criminal activity by anyone. The Attorney General has special expertise in investigating and prosecuting criminal cases that bank regulators may not possess. Finally, BNYM complains that assessing penalties against, a financial institution would defeat the point of FIRREA by weakening the institution and therefore putting federally insured deposits at risk. Not only is this belied by the various penalties that clearly can be assessed under Sections 1833a(c)(1) and Section 1818(i) against institutions that have acted improperly, the argument ignores the principal purpose of these penalties — deterrence. Congress well could have concluded that the deterrent effect of meaningful penalties is more important than permitting institutions to engage in dangerous fraudulent behavior without sanction for fear of hurting them. Moreover, Section 1833a places maximum limits on penalties; a court can tailor them to provide both for deterrence of future frauds and for avoiding harm to innocent parties like taxpayers and depositors, consistent with the purposes of FIRREA. In sum, the essential point is this: the statute permits penalties against “whoever” commits a fraud affecting a federally insured financial institution. The purpose of that provision is to deter frauds that might put federally insured deposits at risk. Here, BNYM has been charged with participating in a fraudulent scheme and harming itself in the process. Just as Congress clearly intended to deter bank employees from engaging in fraud that results in harm to these institutions, Congress was entitled to conclude that penalties against financial institutions in cases like this would deter such institutions from similar, harmful, fraudulent conduct. If anything, the urgency may even be greater when the fraud allegedly pervades an institution that the government has backstopped. Both the text and purpose of FIRREA amply encompass the alleged conduct here. Defendants’ motion to dismiss on this ground is denied in full. III. Sufficiency of Fraud Allegations Defendants next contend that the SAC fails sufficiently to plead claims of wire or mail fraud against either of them. The allegations of fraud may best be divided into four categories: (1) representations about the quality of traditional standing instruction pricing, including best execution, (2) representations about netting, (3) representations about same pricing, and (4) fraudulent omissions. A. Basic Principles Sections 1341 and 1343 prohibit the use of mails or wires in furtherance of “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” These statutes “are violated by affirmative misrepresentations or by omissions of material information that the defendant has a duty to disclose.” Moreover, “it is just as unlawful to speak ‘half truths’ or to omit to state facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading.” “Essential to a scheme to defraud is fraudulent intent.” In civil cases, Rule 9(b) applies to averments of fraud. This complaint therefore must allege facts that “give rise to a strong inference of fraudulent intent.” The Circuit has noted that the pleadings can allege the requisite strong inference by “(1) alleging facts to show that defendants had both motive and opportunity to commit fraud, or by (2) alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.” “[T]he most straightforward way to raise such an inference for a corporate defendant will be to plead it for an individual defendant. But it is possible to raise the required inference with regard to the corporate defendant without doing so with regard to a specific individual defendant” or even “ ‘without being able to name the individuals who concocted and disseminated the fraud.’” Our Circuit has suggested that intent to defraud for purposes of the mail and wire fraud statutes comprises two principal parts: (1) intent to deceive and (2) contemplation of actual harm to the victim. Where a “defendant made misrepresentations to the victim(s) with knowledge that the statements were false,” an intent to deceive may be inferred. To “assure that the defendant’s conduct was calculated to deceive,” courts consider also whether the scheme was “ ‘reasonably calculated to deceive persons of ordinary prudence and comprehension.’” The ordinary prudence standard is just a “tool” to be used in assessing the intent of the defendant, however, and a defendant may have the requisite intent even if the victims proved to be careless, gullible, or negligent. But “[mjisrepresentations amounting only to a deceit are insufficient,” as such “deceit must be coupled with a contemplated harm to the victim.” Hence, deceit that does not go to the “nature of the bargain itself’ where the customers “received exactly what they paid for” is not sufficient absent contemplation of harm to the victims. Where misrepresentations are “only collateral to the sale” and are not “capable of affecting the customer’s understanding of the bargain [or] of influencing his assessment of the value of the bargain to him,” there generally is no intent to defraud. On the other hand, “[w]here the false representations are directed to the quality, adequacy, or price of the goods [or services] themselves, the fraudulent intent is apparent because the victim is made to bargain without facts obviously essential in deciding whether to enter the bargain.” Even if the misrepresentations do not go directly to the nature or quality of the services, intent to harm “may be inferable from facts indicating a discrepancy between benefits reasonably anticipated because of the misleading representations and the actual benefits which the defendant delivered, or intended to deliver.” “In either instance, the intent of the schemer is to injure another to his own advantage by withholding or misrepresenting material facts.” In sum, “[i]t is not sufficient that the defendant realizes that the scheme is fraudulent and that it has the capacity to cause harm to its victims.” Rather, the allegations, if true, “must demonstrate that the defendant had a conscious knowing intent to defraud and that the defendant contemplated or intended some harm to the property rights of the victim.” But “where a necessary consequence of the scheme, if it were successful, would be injury to others, fraudulent intent may be inferred from the scheme itself.” B. Representations Relating to Quality of Traditional Standing Instruction Pricing The first category of representations at issue here is representations going to the quality of traditional standing instruction pricing in the ordinary course. It comprises a number of distinct representations, including (1) best execution, (2) whether the price generally reflected the interbank market at the time of execution, (3) free of charge and minimizing costs, and (4) best rate of the day. The Bank is charged with all of them, and Nichols is charged with all but the representations that the service was free of charge and minimized costs. The Court discusses these representations in turn. As discussed below, however, the analysis of fraudulent intent overlaps significantly in view of the similarity in the respective impression that each allegedly conveyed. 1. “Best Execution ” a. Materially False or Misleading The SAC adequately alleges that the representation that BNYM provided “best execution” was materially false or misleading. The SAC alleges that “best execution” is a term of art in the industry meaning that the bank provides to the customer the best price available in the circumstances. In SEPTA, this Court previously rejected this Bank’s argument that the Court could decide, as a matter of law, that the alleged industry understanding of best execution as best available price applies only to the securities markets and not the FX markets. To the extent defendants in this case invoke documents quoted by the SAC as proving that “there is no standard definition of best execution” in the FX markets, defendants ask this Court to consider the documents for the truth of the matters asserted therein, which is impermissible at this stage. The Court therefore declines the invitation to adopt the Bank’s position as a matter of law. Defendants argue that the Standard Comment drafted by Nichols never said that best execution meant best price, and sought to emphasize the importance of other factors. But it need not have done so in light of the alleged industry understanding of the term. As this Court concluded in SEPTA, to whatever extent these statements “suggest that BNYM viewed its best execution standard as involving many aspects of trade facilitation other than pricing, the language does not expressly forswear the industry understanding of the term.” Thus, “[o]ne at least plausibly might read [the Standard Comment] as adding to BNYM’s obligations, rather than implicitly redefining an oft-used industry pricing term without saying so expressly.” Moreover, the hill defendants must climb here is much steeper on this point than in SEPTA because the Standard Comment used several terms suggestive of a best pricing understanding of best execution, including “ ‘goal of maximizing the value of the client portfolio under the particular circumstances at the time’ ” and “ ‘maximize the proceeds of each trade.’” Thus, defendants’ contention that the Standard Comment did not expressly equate best execution with best available price is unavailing. Having sufficiently alleged that defendants’ representations suggested that they were pricing under the industry definition, the SAC further adequately alleges that such representations were materially false or misleading. BNYM argues that it is not plausible that anyone could have believed that BNYM was offering a sophisticated service like standing instruction and providing the same prices it could obtain in the interbank market. It argues also that the best execution statements cannot form the basis of a fraud claim because what constitutes the “best available” price is open to considerable debate in light of the many factors that go into assessing the quality of execution. These arguments miss the point. BNYM may well be correct that even the SAC’s definition of best execution did not require it to trade at the interbank rate itself; the Court is skeptical that a price is really “available” in the market if any bank offering that rate to its customers likely would lose on every trade. It may prove correct also that the industry understanding of “best available” price still incorporates certain qualitative factors of execution, such that a bank can offer price spreads larger than others but still be considered as providing best execution. Finally, it may prove correct that there is some disagreement in the industry about what exactly best execution requires. Nevertheless, at this stage, it is at least plausible that BNYM’s practices — which allegedly produced spreads ten times that of negotiated transactions — sufficiently exceeded the bounds of any reasonable industry understanding of best execution to make the representation false or, at a minimum, misleading. b. Intent to Deceive i. BNYM The SAC’s allegations that BNYM intended to deceive its customers about the nature of its pricing practices through the “best execution” representation are more than sufficient to survive dismissal. The SAC alleges that key BNYM employees knew that best execution was a term with an industry meaning — indeed, as discussed below, Nichols specifically invoked industry definitions in internal emails when crafting the Standard Comment. Moreover, the SAC contains allegations permitti