BNY Mellon will pay a group of investors including some pension funds $280 million over allegations that the bank imprudently invested their capital under a securities lending program.
(July 6, 2012) — BNY Mellon is to pay $280 million to a group of investors that filed a lawsuit accusing the bank of improper securities lending losses stemming from investments with Sigma Finance Corp.
BNY Mellon announced the settlement this week.
The fiduciaries of the Electrical Workers Local No. 26 Pension Trust Fund and the Children’s Hospital of Philadelphia Defined Benefit Master Trust were named as two of the lead plaintiffs in the lawsuit. According to the lawsuit, BNY Mellon invested and lost a significant amount of capital with Sigma Finance through a securities lending program with the plaintiffs.
Sigma Finance Corp, a $27 billion structured investment vehicle created by Gordian Knot Ltd., imploded in October 2008.
"The Sigma settlement agreement reflects the meaningful progress we are making in navigating the litigation environment that affects our company and the industry overall. We are putting this litigation behind us, with no significant impact on our capital position, while continuing to make headway on other matters," said Gerald L. Hassell, chairman, president and chief executive officer of BNY Mellon. A court must approve the settlement agreement before it becomes valid.
BNY Mellon is not the first bank to deal with fallout from securities lending misfortunes connected with Sigma Finance. In March, JP Morgan agreed to pay $150 million to a group of pension funds that filed a lawsuit alleging securities lending improprieties involved with Sigma. Their lawsuit accused JP Morgan of predicting Sigma’s collapse and engaging in “predatory repo with substantial haircuts to ‘cherry-pick’ the best assets in Sigma’s portfolio for itself, immediately [depleting] the quantity and quality of Sigma’s assets by taking title to assets in an amount that exceeded the financing it provided by nearly a billion dollars; and ultimately [reaping] nearly $2 billion of profits for itself while leaving the Class’ notes virtually worthless.” JP Morgan denied the charges.
As a result of the settlement, BNY Mellon expects to take a $350 million pre-tax hit in the second quarter of 2012. The case is CompSource Oklahoma, et al v BNY Mellon and The Bank of New York Mellon, U.S. District Court, Eastern District of Oklahoma, No.09-469.