The Salvation Army versus BNY Mellon continues
01 February 2013 New York
Image: Shutterstock
A judge has refused to throw out a lawsuit from The Salvation Army that claims BNY Mellon mismanaged its assets by investing the collateral used for securities lending in risky mortgage backed securities.
In April 2011, the Southern Division of The Salvation Army in the US launched legal proceedings against BNY Mellon following losses that were incurred as a result of its securities lending programme.
The charity alleges that it had emphasised to the bank that it had little experience in securities lending and wanted little or no risk from participating.
“As a result of BNY Mellon’s misconduct, The Salvation Army has incurred losses and is left holding unproductive, toxic assets with extended maturity dates, the values of which have substantially declined,” the organisation said in the lawsuit.
“We believe our actions were appropriate, and we will defend ourselves vigorously against these claims, which are without merit,” said Ron Gruendl, a spokesman for BNY Mellon, at the time the lawsuit was filed. “We have a very rigorous process, and our clients understand both the benefits and risks of securities lending.”
Justice Barbara Kapnick said that the charity must only "state a claim at this juncture, not prove it" in a 25 January decision rejecting the bank's motion to dismiss the breach of fiduciary duty claim.
Kapnick also let breach of contract and gross negligence claims stand, but dismissed a claim for negligent misrepresentation.
"We are pleased that the court's procedural decision narrowed the case, dismissing one of the claims against BNY Mellon," said a statement from the bank. "As the litigation proceeds, we're confident the facts will demonstrate that the remaining claims are also without merit."
In April 2011, the Southern Division of The Salvation Army in the US launched legal proceedings against BNY Mellon following losses that were incurred as a result of its securities lending programme.
The charity alleges that it had emphasised to the bank that it had little experience in securities lending and wanted little or no risk from participating.
“As a result of BNY Mellon’s misconduct, The Salvation Army has incurred losses and is left holding unproductive, toxic assets with extended maturity dates, the values of which have substantially declined,” the organisation said in the lawsuit.
“We believe our actions were appropriate, and we will defend ourselves vigorously against these claims, which are without merit,” said Ron Gruendl, a spokesman for BNY Mellon, at the time the lawsuit was filed. “We have a very rigorous process, and our clients understand both the benefits and risks of securities lending.”
Justice Barbara Kapnick said that the charity must only "state a claim at this juncture, not prove it" in a 25 January decision rejecting the bank's motion to dismiss the breach of fiduciary duty claim.
Kapnick also let breach of contract and gross negligence claims stand, but dismissed a claim for negligent misrepresentation.
"We are pleased that the court's procedural decision narrowed the case, dismissing one of the claims against BNY Mellon," said a statement from the bank. "As the litigation proceeds, we're confident the facts will demonstrate that the remaining claims are also without merit."
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