Salvation Army Complaint Against Bank of New York Mellon Stands
ATLANTA, Jan. 29, 2013
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."
The court's decision noted that if BNY "neglected to manage the account
appropriately, and did not make use of the investment information it had, in
good faith, on behalf of its client, it may have violated the contract's
implied covenant." As a result, the court upheld The Salvation Army's claims
against BNY for breach of fiduciary duty, breach of contract, and gross
Overall, The Salvation Army alleged that investments made by BNY on the Army's
behalf left the Army's account holding "unproductive, toxic assets," and is
seeking damages of approximately $22 million to support its vital charitable
social service programs at this time. The many critical services the Army
provides include food and clothing distribution, community development
programs, and disaster relief. Each of these programs is dependent upon
charitable donations, which account for virtually all of The Salvation Army's
The Salvation Army Southern Territory previously stated, "The stewardship of
the money entrusted to us is a responsibility that The Salvation Army has
always taken very seriously, and we will not allow that trust to be broken.
The Bank of New York Mellon breached our trust and we intend to pursue full
recovery for its gross misconduct."
The Southern Territory, headquartered in Atlanta, is one of five separate
Salvation Army corporate entities in the United States. The Southern Territory
supports the Army's operations in 15 Southeastern states and the District of
Columbia. The Southern Territory's action against BNY is not connected to the
other four Army corporations.
About The Salvation Army
The Salvation Army, an evangelical part of the universal Christian church
established in 1865, has been supporting those in need in His name without
discrimination for more than 130 years in the United States. Nearly 30 million
Americans receive assistance from The Salvation Army each year through the
broadest array of social services that range from providing food for the
hungry, relief for disaster victims, assistance for the disabled, outreach to
the elderly and ill, clothing and shelter to the homeless and opportunities
for underprivileged children. 82 cents of every dollar spent is used to
support those services in 5,000 communities nationwide. For more information,
go to www.salvationarmyusa.org or www.salvationarmysouth.org.
SOURCE The Salvation Army
Contact: Lt. Col. David Mothershed, The Salvation Army, +1-404-728-1300
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