A U.S. District Court judge has ruled in favor of the Bank of New York Mellon after one of its foundation clients sued over fees, alleging that other clients paid half of what BNY charged the foundation.
The Claude Worthington Benedum Foundation — which had nearly $350 million at the end of 2018 — claimed in February that BNY Mellon had breached its fiduciary duty and committed fraud by failing to give the foundation its “best pricing.”
In response, BNY Mellon argued that it was not required to charge Benedum the lowest prices possible or those equal to its other clients. Judge J. Nicholas Ranjan ruled in favor of BNY Mellon’s motion to dismiss the case on Tuesday.
“Although there was no requirement that BNY Mellon disclose or charge Benedum its lowest price, there was a requirement that BNY Mellon not make materially false statements to Benedum when it negotiated the fee agreement,” Ranjan said in his memorandum dismissing the case.
This isn’t the first time Benedum has had a problem with the way BNY Mellon handled its money, the court case shows. BNY and its predecessor Mellon Bank have been the foundation’s custodian since 1977, according to the court filings. In 1993, Mellon also became the education and economic development charity’s trustee.
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In 2004, Benedum invested $2 million in an offshore multistrategy fund with BNY Mellon, per the case. The fund collapsed and Benedum lost its entire investment just four years later.
Benedum had alleged in another suit that BNY knew about the fund’s illiquidity in 2007, but failed to disclose that to the foundation. The two settled that dispute in 2011, with BNY agreeing to make a confidential payment to Benedum and reduce its custodial fees.
According to the fee suit, Benedum learned in March 2018 that BNY was charging other customers half the rate for custody services that the Pennsylvania foundation was paying.
While Benedum paid 1.5 basis points on its assets, others allegedly paid 0.75 basis points — a disparity that had existed “for at least five years.” In total, the foundation claimed that BNY overcharged it $131,000, or $26,500 per year.
But according to the judge, “fundamental pieces” of Benedum’s story about BNY Mellon were missing. It’s unclear, the judge noted, what exactly BNY Mellon said about its pricing, and whether the firm had promised Benedum the lowest pricing possible.
Benedum has 21 days to file a second amended complaint, the memorandum said.
A BNY Mellon spokesperson declined to comment, and a Benedum representative did not immediately respond to an emailed request.