State Treasurer Curtis Loftis has filed a lawsuit against the Bank of New York Mellon.
In that suit we alleged that the Bank of New York Mellon inappropriately invested in mortgage back securities which comprised of sub-prime mortgages that had maturity dates greater than allowed. We also believed that the bank invested in certain debt instruments with the now bankrupt Lehman Brothers investment company.
Loftis says these are contract violations, resulting in $200 million. He says these violations led to taxpayers losing out.
Part of it is a security lending agreement. Idol securities are lent out, and this is a standard practice, they are lent out to different groups. They pay a fee for that, and income is derived. But we, the state of South Carolina, set limits on the types of investments the Bank of New York could make, and we believed they exceeded their authority, and thereby we suffered losses.
Here’s how Loftis says the Bank of New York Mellon exceeded their authority, resulting in the lawsuit:
We’re supposed to be very conservative investments, high-quality investments, and we were put into asset back, sub-prime mortgages. We also had maturity dates of three years or less, and many of these instruments were 30 years. We believe these are clearly against the terms of the contract, and that’s the point of the lawsuit.
Loftis says ultimately it’s the taxpayer suffering.
These kinds of lawsuits, any type of investment loss, or even when we spend money as the state on any program, the taxpayer always has to pay the bill, we should never forget that.
Loftis says it may take years to receive the $200 million the state is seeking in damages, but he expects to win the case. He says “when” they receive the money, it will return back to the original two funds it came out of–
The General Fund, which is the state’s operating fund, and the Retirement System Investment Commission, and that’s the commission that invests the retirement trust fund.
Loftis says although it’s a long process, he “will continue to work with counsel to recover every penny due to the citizens of South Carolina.”