NY Supreme Court Decision Supports Claims of "Gross Mismanagement" of Securities Lending Portfolio
ATLANTA, Jan. 29, 2013 /PRNewswire-USNewswire/ -- The Supreme Court of the State of New York upheld The Salvation Army Southern Territory's lawsuit against The Bank of New York Mellon (BK) alleging, among other things, that the Bank grossly mismanaged its securities lending account. The mismanagement led to losses that would have been avoided had the bank followed The Salvation Army's highly conservative investment mandate emphasizing principal preservation and liquidity. The court rejected BNY's motion to dismiss The Salvation Army's complaint, upholding three of the most critical claims that the organization brought against the bank: gross negligence, breach of fiduciary duty and breach of contract.
"This is an important step for The Salvation Army in rectifying the mishandling of our funds," said Lt. Colonel David Mothershed, Chief Investment Officer for The Salvation Army Southern Territory. "For three years we have pushed for an amicable settlement with Bank of New York Mellon to resolve allegations outlined in the lawsuit without success, but the court's decision validates our efforts to remedy the bank's failure to follow our instructions to be fiscally conservative with all of our funds and investments."In the lawsuit, The Salvation Army alleges that BNY assured the nonprofit that it would "invest and maintain the Army's funds in conservative assets with low risk and high liquidity." This was an agreed-upon strategy consistent with the Army's guiding principle of "safety first" to ensure protection and growth of funds. Despite its assurances, BNY purchased highly volatile securities for the organization's account, including "asset-backed securities derived from sub-prime and other low quality mortgages and home equity loans." Further, the bank failed to properly manage and protect the portfolio of The Salvation Army "as market conditions deteriorated."