‘Self-Dealing, Conflicted Transactions’: Lawsuit Alleges BNY Mellon Dumped Client Money Into Poor-Performing Investments

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A proposed class action looks to represent current and former customers of Bank of New York Mellon’s wealth management division who transferred millions to and entrusted the bank to invest the money at its “prudent discretion.” 

The 44-page lawsuit alleges Bank of New York Mellon Corporation and BNY Mellon, N.A. “breached their promises” to proposed class members by not only falling short of their duties as fiduciaries but putting their own interests ahead of those of clients and failing to choose investments that best aligned with clients’ objectives. 

The plaintiffs, a husband and wife from Georgia, allege more specifically that BNY Mellon has instead used client assets to buy consistently underperforming investment vehicles in which the bank and its parent company had financial interests; from which BNY Mellon and its individual investment managers received “unauthorized and undisclosed” commissions, fees, incentives or other compensation; and from which BNY Corp. and its affiliates earned millions in undisclosed fees.

“These self-dealing, conflicted transactions were not in BNY Mellon’s clients’ best interests,” the complaint, filed on December 21 in Pennsylvania federal court, claims. “BNY Mellon, however, placed its clients in these unauthorized, self-dealing investment vehicles even when other, more affordable, and better performing alternative investments were available for its clients.” 

Instead of offering clients unbiased services pursuant to a fiduciary standard, BNY Mellon “abandoned its fiduciary duties” in order to advance its own financial interests, the lawsuit alleges. According to the suit, BNY Mellon improperly used client funds to buy “preselected, affiliated and conflicted mutual funds” and other investment vehicles that were managed, issued or sponsored by the bank or its affiliates or to which BNY was otherwise financially linked. 

The suit charges that BNY Mellon selected these funds “not because they were based on independent financial assessments of its clients’ best interests, but rather to enrich itself and its affiliates.” 

Proposed class members were harmed not only by BNY Mellon’s apparent self-dealing in that the affiliated funds consistently underperformed the market, but as a result of BNY’s collection of advisory and other fees while it acted as an “unfaithful fiduciary,” the case alleges. 

The lawsuit looks to represent all persons for whom BNY Mellon had investment discretion over assets that they provided to the bank, pursuant to an investment advisory agreement or similar agreement, and had BNY Mellon use its discretionary authority to invest in investment vehicles that were financially affiliated with BNY Mellon or BNY Corp. 

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