BNY Mellon Shareholders Lose Del. Suits Over Forex Dealings

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By Michael Greene

Dec. 2 — Bank of New York Mellon Corp. directors and officers defeated claims that they breached their legal duties in connection with foreign-exchange transactions that cost the bank hundreds of millions of dollars in fines and penalties ( Zucker v. Hassell , 2016 BL 399710, Del. Ch., No. 11625-VCG, 11/30/16 ; Kops v. Hassell , 2016 BL 399694, Del. Ch., No. 11982-VCG, 11/30/16 ).

The Delaware Chancery Court Nov. 30 dismissed two shareholder derivative lawsuits alleging that the executives allowed the bank to engage in fraudulent conduct.

Vice Chancellor Sam Glasscock III concluded that BNY Mellon’s board didn’t improperly reject pre-litigation demands by the shareholders to take legal action. Under Delaware law, when such a demand is rejected, an investor can only proceed with its lawsuit on the company’s behalf if it successfully shows that the board was grossly negligent in refusing to act.

The bank has incurred approximately $1 billion in losses from lawsuits and regulatory actions over its forex practices, according to the court’s decision.

In May 2015, BNY Mellon agreed to pay $714 million to settle allegations brought by the U.S. Department of Justice and the New York Attorney General. Prosecutors charged that the bank promised to provide clients with the best rates available when executing forex trades but instead provided them with less favorable terms.

Two Demands

Shareholder Murray Zucker made a litigation demand in March 2011 that was rejected that year by a special committee of BNY Mellon independent directors. Zucker claimed that the company’s 2015 settlements with government agencies showed the special committee wrongfully refused his litigation demand.

The court rejected the argument. "[Zucker] asks that I look past the steps the Board took via the Special Committee to inform itself, and conclude that based on the existence of large settlements later in time, the Board must have been grossly negligent,” Glasscock wrote. “That is not our law, nor does it follow logically, in my view, from the facts pled.”

The court also found that the special committee could reasonably rely on an investigation by its corporate counsel, Cravath, Swaine and Moore LLP. It said the firm reviewed over 10,000 documents and conducted numerous interviews, after which it provided the bank with a detailed overview of its fact-finding.

In a separate ruling, the court concluded that a special committee of directors didn’t wrongfully refuse a litigation demand by shareholder Carole Kops in 2012. Glasscock rejected Kops’ argument that the committee wrongfully refused her demand because it relied solely on its previous investigation and didn’t consider subsequent developments.

To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

For More Information

The Zucker opinion is available at //src.bna.com/kt9.The Kops opinion is available at //src.bna.com/kua.

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