South Carolina Sues BNY for Lehman and Subprime Losses
South Carolina’s State Treasurer filed suit against the Bank of New York (BNY) for $200 million in losses in Lehman Brothers’ debt and subprime mortgage backed securities (MBS), according to a Law 360 article by Christie Smythe. South Carolina has alleged that the securities it entrusted to BNY, that were lent to borrowers in exchange for cash collateral and fees, could only be invested in certain approved investments such as short term, high quality, conservative investments that would generate income for the State. In return, the Bank of New York would share in the earnings as compensation.
Contrary to these objectives, South Carolina claims that the bank invested its money in Lehman Brothers notes, which are now unsecured claims in the Lehman bankruptcy, and in structured products backed by subprime mortgages. Carolina has asserted claims for breach of fiduciary duty, breach of contract, negligence, gross negligence, willful misconduct and fraud. In addition to compensatory damages the State is seeking punitive damages, prejudgment interest, costs, expert fees and attorneys’ fees. There have been some $1.2 trillion in claims filed in the bankruptcy with some $367 million in remaining allowable claims, according to this report.
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