Published July 03, 2013
NEW YORK – Bank of New York Mellon Corp officers and directors won the dismissal of a shareholder lawsuit accusing them of shirking their duties by letting the bank overcharge clients for trading currencies.
In a decision made public on Wednesday, U.S. District Judge Lewis Kaplan in Manhattan said shareholders failed to allege that officials including Chief Executive Gerald Hassell ignored "red flags" or knew of facts to indicate that the world's largest custody bank was acting illegally.
He said the lawsuit did not create "reasonable doubt that the board's inaction was a valid exercise of business judgment."
Kaplan also said the shareholders should have prior to suing demanded that the bank's board take action, rejecting their argument that this demand was not necessary because the directors had consciously let the misconduct take place.
The plaintiffs were led by the Iron Workers Mid-South Pension Fund and by California resident Marilyn Clark.
They alleged that the pricing scheme triggered more than $2 billion in liabilities for the bank, and damaged its bottom line, credit rating, reputation and stock price.
Lawyers for the plaintiffs did not immediately respond to requests for comment.
Kaplan handles nationwide civil litigation over whether Bank of New York Mellon from 2000 to 2011 cheated pension funds and other clients, and reaped illegal profit, by handling currency trades at the worst or nearly the worst prices of the day.
One such case was brought in 2011 by the U.S. government. Kaplan in April let it pursue the main claim, that the bank had fraudulently misrepresented that it would provide "best execution" to its trading clients.
Some state attorneys general have brought civil cases. Bank of New York Mellon agreed last year to change some disclosures regarding its currency services.
The shareholder lawsuit had sought to force current and former officers and directors to reimburse the bank for damages, and have the bank change its business and governance practices.
A lawyer for the bank officials did not immediately respond to a request for comment. A Bank of New York Mellon spokesman was not immediately available for comment.
The case is In re: Bank of New York Mellon Corp Shareholder Derivative Litigation, U.S. District Court, Southern District of New York, No. 11-08471. The main litigation is In re: Bank of New York Mellon Corp Forex Transactions Litigation in the same court, No. 12-md-02335.
(Editing by Gerald E. McCormick and Matthew Lewis)