BNY Mellon Reaches $34 Million Settlement With South Carolina Relating to Securities Lending Litigation

BNY Mellon and the South Carolina State Treasurer have reached settlement on a lawsuit over securities lending, which started in 2011.

BNY Mellon will pay a $34 million settlement upon the dismissal of the case and the treasurer’s office will retain BNY Mellon’s securities lending services for at least ten years.

The South Carolina Treasurer, Curtis M. Loftis Jr., originally sued the bank in January 2011, complaining that it had failed to adhere to the investment guidelines under the securities lending agreement (SLA) relating to the state’s pension fund.

Under the settlement, BNY Mellon will credit $25 million to the custodial accounts it holds for South Carolina, with about $20 million going to the collateral reinvestment account for South Carolina Retirement System Investment Commission and about $5 million to that of the State Treasurer’s office. The remaining $9 million will cover legal fees.

The renewed 10-year contract with BNY Mellon has several stipulations, including a discounted fee rate equivalent to 80% of the normal rate, and a further reduction of annual custody fees by 20% if at least $3 billion are in custody under HedgeMark International, a BNY Mellon subsidiary. The settlement estimates BNY Mellon’s custodial fees to be about $2.6 million per year.

Furthermore, 90% of revenues from securities lending will go to South Carolina, with 10% kept by BNY Mellon. The settlement also includes $150,000 per year for at least ten years to the treasurer’s office for “the training of staff and employees.”

BNY Mellon could not be reached for comment. According to the settlement, it had denied the allegations and denied any breach of the SLA or breach of any of its duties under the securities lending program.