The State Treasurer of South Carolina has filed a lawsuit against The Bank of New York Mellon Corp. (“BNY”) seeking to recover up to $200 million in losses in Lehman Brother’s debt and subprime mortgage-backed securities in connection with a securities lending program that was managed by BNY. See “SC Sues BNY Over $200M In Suprime, Lehman Losses,” by Christie Smythe, Law 360, Jan. 27, 2011.
Pursuant to the program, the State entrusted securities to BNY, which lent them to borrowers in exchange for cash collateral and fees, which were invested by BNY to generate income on behalf of the State. BNY received a share of the earnings as compensation.
Since borrowers could require the return of the cash collateral on short notice, the State alleges, the collateral could only be invested in certain approved investments, i.e., short-term, high-quality, conservative instruments. Instead, unbeknownst to the State, BNY invested the State’s money in Lehman notes, which are now unsecured claims in the Lehman bankruptcy, and assets backed by long-term subprime mortgages, according to the complaint.
The State’s claims are based on breach of contract, breach of fiduciary duty, negligence, gross negligence, and/or willful misconduct, and fraud. The damages sought by the State include market-adjusted actual damages, punitive damages, prejudgment interest, costs, and reasonable fees of attorneys, accountants and expert witnesses.
Lehman recently filed a revised plan for exiting Chapter 11. The Lehman bankruptcy has been proceeding since September 2008. $1.2 trillion of claims have been filed in the bankruptcy. Approximately $367 million of allowable claims remain, according to the article.
Page Perry has over 125 years collective experience representing institutional and individual investors in mortgage securities-related litigation and arbitration all over the country. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 40 occasions.