Walden vs The Bank of New York Mellon Corporation and BNY Mellon, N A , Case No 2 20 cv 01972 USDC

Mar 30, 2021

SUMMARY:

This episode of LegalCast focuses on the class action lawsuit against Bank of New York Mellon Corporation and BNY Mellon, N.A. regarding their alleged breaches of fiduciary duty handling discretionary investment accounts for private wealth clients. The guest lawyers explain the details of the case and the allegations against the defendants, describing in laymen’s terms the ways these investment practices violated their clients’ trust by purposefully breaching their contractual promises to investors. Instead of investing clients’ money in funds that would best benefit the clients, they engaged in a predetermined scheme to funnel money into investment vehicles that were owned by, or affiliated with, the Bank of New York.

 

The guest lawyers also encourage listeners to be more conscious of their own banking practices by monitoring how their financial institutions are handling their money, asking questions to understand what is being done with their finances, and making sure not to blindly trust these institutions. 

 

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KEY IDEAS:

 

• A class-action lawsuit has been filed against the Bank of New York Mellon Corporation and BNY Mellon, N.A. on behalf of current and former customers of the BNY wealth management division, on the basis that the bank’s investment advisors did not fulfill their fiduciary obligations to their clients and were not acting in the clients’ best interests when making discretionary investments.

• The investment advisors were using clients’ funds to purchase underperforming investment vehicles from companies affiliated with or owned by the Bank of New York, breaching their obligation to invest in funds for the sole benefit of their clients. As a result of this predetermined scheme, the bank ended up earning millions of dollars on the backs of their clients from these undisclosed practices.

 

• Banks have written themselves out of the Investment Advisory Act that allows the federal government to oversee financial advisors and set fiduciary duties, and therefore are not regulated by the SEC, giving them more leeway to “escape a lot of the scrutiny that an independent investment advisor might have.”
• The banks brought an obligation on themselves by creating a set of rules and laying out terms in their contracts that clearly defined what they would and would not do in the best interests of their clients, and then proceeded to violate those terms and engage in deceptive and unfair practices toward their customers.

 

• Cases like this are important because they show banks that they cannot get away with breaches of fiduciary duty, and hopefully this case will deter other companies from ignoring their fiduciary duties.

• Consumers can protect themselves from similar situations by consistently checking up on their bank statements, asking questions of their financial advisors to understand what is being done with their money, and avoiding blindly trusting these financial institutions.

 

QUOTES:

 

“Banks have been acting in a lot of ways … according to their own rules.” (4:06)

“They breached their promises to all of their clients because, as we set forth in the action, they don’t act in conformance with their fiduciary obligations, they don’t put their clients’ interests in front of its own interests, they don’t choose investments that actually align with their clients’ objectives, and they don’t prudently invest their clients’ funds.” (6:27)

 

“I think one of the most outrageous aspects of this case is the damage to your everyday consumers … we might not be so angry about it if it was just the 1%. This is your grandparents’ retirement fund we’re talking about.” (11:53)

 

“They have a choice in where to put these funds, and they shouldn’t be exercising their choice to purchase their own products. This is a product delivered by their affiliates. Instead, they should be looking at the best products for their clients, irrespective of who owns it.” (19:06)

 

“There’s a gap in regulatory review here that, in my mind, allows banks to escape a lot of the scrutiny that an independent investment advisor might have.” (23:13)

 

“Anybody who has handed over discretion to a bank to make a choice should be looking to see whether the bank is in fact exercising its discretion in a prudent way, or are they still selling you bank products?” (30:30)

 

“Banks are private companies that want to make money off their customers, but they need to do it in a way that’s fair, with the right disclosures, and that follows the law.” (31:37)

 

“Speaking to whoever is your investment advisor and questioning them and not taking everything at face value, I think is a lesson that we could all learn.” (33:16)

 

“Sometimes these things happen where people … breach important trust and when that happens, I think folks should stand up for themselves and stand up for their rights.” (40:38)

 

“One of the important aspects of living in a free and democratic society is being able to actually rely on and trust the institutions that are the tentpoles of our society.” (42:28)