Investor Suit Over BNY Mellon Forex Fines Before Del. High Court

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Yin Wilczek

Bank of New York Mellon Corp. officers and directors will try to convince the Delaware Supreme Court June 14 that they satisfied their legal duties in connection with foreign-exchange transactions that ultimately cost the bank almost $1 billion in regulatory penalties ( Zucker v. Hassell, Del., No. 606, 2016, oral argument 6/14/17 ).

The state high court is slated to hear arguments in a lawsuit by shareholder Murray Zucker alleging that BNY Mellon directors improperly refused his request to take legal action to address the forex practices.

The supreme court’s decision in the case may affect how boards exercise their business judgment when evaluating shareholders’ litigation demands.

The Delaware Chancery Court dismissed Zucker’s lawsuit in November. The chancery court found that the BNY Mellon board properly rejected Zucker’s litigation request after authorizing a special committee to look into the claims. The court also found that the special committee could reasonably rely on an investigation by its corporate counsel, Cravath, Swaine & Moore LLP. It said the law 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 May 2015, BNY Mellon agreed to pay $714 million to settle fraud allegations brought by the U.S. Department of Justice and New York Attorney General Eric Schneiderman. 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.

Zucker will be represented at the oral argument by Robert Goldberg from Biggs & Battaglia in Wilmington, Del. The bank will be represented by Stephen P. Lamb from Paul, Weiss, Rifkind, Wharton & Garrison LLP in Wilmington.

Patriarch Partners and Zohar Funds

The Delaware Supreme Court June 14 also will hear argument as to whether Patriarch Partners LLC contractually was required to turn over certain materials to Zohar Funds after it resigned as the funds’ collateral manager in March 2016.

The chancery court concluded that Patriarch breached its obligations under various collateral management agreements by failing to produce to the funds documents related to the collateral it previously managed.

Patriarch appealed, arguing that the chancery court misread the contract provisions and that the funds didn’t produce evidence to support essential elements of their claims.

Patriarch will be represented at the oral argument by Robert Whetzel, Richards, Layton & Finger PA, Wilmington. Zohar will be represented by Kenneth J. Nachbar, Morris Nichols, Arsht & Tunnell LLP, Wilmington.

In a separate lawsuit, the new manager of the Zohar funds has asked the chancery court to remove Patriarch Chief Executive Officer Lynn Tilton from the funds’ boards. The manager—Alvarez & Marsal Zohar Management LLC—accuses Tilton of self-dealing by granting herself perpetual control over the company directorships.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Susan Jenkins at sjenkins@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law