Bank of New York Mellon has agreed to recompense approximately $280m to Sigma Finance, in a case pertaining to the complex debt fund that distorted during the financial crisis of 2008.
As per the settlement agreement, BNY will pay the above said amount over irresponsibly investing and loosing customer money in Sigma, as reported by the Financial Times.
The fine will adversely affect the balance sheet of the New York headquartered bank at the tune of a pre-tax charge of $350m in the second quarter.
At the height of financial crisis, Sigma was the last of the infamous "structured investment vehicles," or SIVs, which failed in October 2008, consequently thousands of investors lost their money mainly because of borrowing cheap money in the short term commercial paper market and then investing in higher-yielding assets including repackaged debt to make a profit.
The bank invested some capital in medium-term debt issued by Sigma as part of the custodian bank’s securities lending program, which reinvests the cash that clients earn by lending out assets such as stocks and bonds.
The compensation underwriter CompSource Oklahoma, which sued the bank claimed that BNY Mellon failed to invest the cash collateral "conservatively and prudently" when it bought the Sigma notes on behalf of clients.
BNY Mellon chairman and chief executive Gerald Hassell said the Sigma settlement agreement reflects the meaningful progress the bank is in navigating the litigation environment that affects the company and the industry overall.
"We are putting this litigation behind us, with no significant impact on our capital position, while continuing to make headway on other matters," Hassell added.