Judge OKs Salvation Army lawsuit vs BNY Mellon

Mon Jan 28, 2013 7:11pm EST

Jan 28 (Reuters) - A judge refused to throw out a lawsuit accusing Bank of New York Mellon of mismanaging The Salvation Army assets by investing nearly $22 million of the charity's funds in mortgage-backed securities and other risky investments.

The Salvation Army, one of the largest U.S. charities, claims in its lawsuit that the bank didn't abide by its obligation to invest in conservative assets and failed to take steps to protect the charity as market conditions deteriorated.

The charity, which filed the lawsuit in 2011 in New York State Supreme Court, is seeking damages for breach of fiduciary duty and other claims.

The Salvation Army must only "state a claim at this juncture, not prove it," Justice Barbara Kapnick wrote in her Jan. 25 decision denying the bank's motion to dismiss the breach of fiduciary duty claim.

Kapnick also let stand breach of contract and gross negligence claims. She dismissed a claim for negligent misrepresentation.

The judge noted the Salvation Army's claim that the bank invested the charities' funds in high-risk securities despite reducing its own exposure to such investments.

The bank said it abided by its securities lending agreement with The Salvation Army, according to the judge's ruling. It urged the court to consider the entire investment portfolio which, the bank said, did well.

It said only six of 25 mortgage-backed securities purchased encountered difficulty, according to the judge.

"We're pleased that the court's procedural decision narrowed the case, dismissing one of the claims against BNY Mellon," said Jeep Bryant, a spokesman for the bank. "As the litigation proceeds, we're confident the facts will demonstrate that the remaining claims are also without merit."

The case is The Salvation Army v. The Bank of New York Mellon, New York State Supreme Court, New York County, No. 650888/11.

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