Recently, The Supreme Court of the State of New York has
rejected a dismissal plea of
The Bank of New York Mellon Corporation
). A lawsuit was filed by The Salvation Army accusing BNY Mellon
of mismanaging funds.
The New York Judge has sustained three out four claims in the
Salvation Army's lawsuit against BNY Mellon's gross negligence,
breach of fiduciary duty and breach of contract. However, the
claim for negligent misrepresentation was dismissed. The
Salvation Army is seeking $22 million in compensation.
In Apr 2011, the southern division of the Salvation Army had
filed the lawsuit alleging gross ignorance on part of BNY Mellon
regarding the investment of the charity's funds. The Salvation
Army's instructions of investing in less risky avenues were not
followed by the bank. Rather, BNY Mellon went ahead and invested
funds in perilous mortgage-backed securities. Consequently, when
the markets collapsed, the Salvation Army suffered huge losses.
In its defense, BNY Mellon was quick to point that the investment
strategy at during that particular period was prudent enough and
it had meticulously executed the investment of the charity's
funds. Further, the bank added that it was willing to challenge
the charges in the court.
Presently, BNY Mellon is not the only bank facing problems over
investment in mortgage-backed securities prior to 2008 financial
crisis. Many financial institutions including
JPMorgan Chase & Co
The Goldman Sachs Group, Inc.
Bank of America Corporation
) have been embroiled in lawsuits over similar practices.
The litigation cost involved will definitely lift up BNY Mellon's
expenses. In addition, the company faces numerous foreign
exchange-related lawsuits, which will keep the litigation costs
at elevated levels, thereby thwarting the efforts made by the
company to contain the rising expenses.
Presently, BNY Mellon holds a Zacks Rank #4 (Sell).
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