BNY Mellon Accused of Violating Federal Regulations Regarding Bad Faith Behavior and Conflicts of Interest by Customer in Complaint Filed with Top Banking Regulator

WASHINGTON, May 15, 2019 /PRNewswire/ -- San Miguel Equities, LLC ("San Miguel"), a borrower and customer of the Bank of New York Mellon ("BNY Mellon"), has filed a formal complaint with the nation's top banking regulator, the Office of the Comptroller of the Currency ("OCC").

Please see the recent story in the American Banker for more on this case: https://www.americanbanker.com/news/did-bny-mellon-violate-code-of-conduct-in-dealings-with-a-community-bank.

San Miguel alleges in its OCC complaint that BNY Mellon engaged in dishonorable and bad faith conduct towards San Miguel after BNY Mellon agreed to loan San Miguel $7 million in 2013 (San Miguel ended up only drawing $5.5 million from this loan agreement):

"…[I]n 2016, San Miguel went to a second bank, [First Foundation Bank, "FFB"], to refinance and pay off BNY Mellon for the remainder of the loan, making FFB its new lender.

After BNY Mellon committed to FFB to immediately release and transfer the collateral upon receipt of its payoff of the remainder of the loan, FFB transferred $5.5 million (the amount remaining on the loan) to pay off the loan, in reliance on BNY Mellon's promise to keep up its end of the bargain by transferring the collateral. However, rather than sending San Miguel's collateral to FFB as agreed, BNY Mellon instead kept the $5.5 million payoff from FFB, withheld the collateral, and refused to respond to any inquiries from FFB or San Miguel for several weeks."

San Miguel alleges BNY Mellon had a secret side deal that caused San Miguel to be liable for millions of dollars for failure to post the promised collateral for the new loan:

"It was later discovered that during those weeks BNY Mellon was making a secret deal with a third-party (that was suing San Miguel and BNY Mellon) to be dismissed from that lawsuit in exchange for an agreement to transfer San Miguel's collateral to a BNY Mellon bank account under the control of the court (called an interpleader account) where the third-party was suing."

BNY Mellon put its own interests first and secretly prejudiced its customer-borrower, San Miguel alleges, in direct violation of good faith rules and anti-conflict of interest OCC regulations, found at 12 C.F.R. § 7.4008 and 12 C.F.R. § 9.12.

According to San Miguel's OCC complaint, BNY Mellon could have sent the money back to the new bank and avoided liability for its borrower-customer, San Miguel. But no – allegedly BNY Mellon instead chose to keep the money sent to pay off San Miguel's loan and renege on its promise to transfer San Miguel's bond portfolio that served as collateral for the new bank's loan.

"We allege that this kind of secretive behavior by BNY Mellon is contrary to the OCC's good faith and anti-conflict of interest obligations under existing regulations," attorney for San Miguel Lanny Davis said.

First Foundation Bank, of Irvine, California, has also filed a lawsuit in California Superior Court against BNY Mellon, alleging the same bad faith behavior contrary to law and banking standards. Scott Kavanaugh, CEO of FFB, issued the following statement in support of San Miguel's OCC complaint:

"First Foundation Bank concurs with the complaint that San Miguel Equities, LLC has filed against BNY Mellon, N.A. with the OCC. Refusing to release San Miguel's collateral after BNY received a full payoff of its loans, and doing so because BNY wanted to use San Miguel's collateral for self-gain, violates the most fundamental duties that a reputable bank and financial advisor owes to its clients. It also violates the code of conduct that must exist between financial institutions in a world where refinancing and other multi-million dollar transactions are done on a daily basis via wire transfers and other electronic means. Without that code of conduct, the lending industry would be in disarray."

San Miguel's OCC complaint asks for an investigation into BNY Mellon as well as OCC sanctions and other regulatory penalties if justified. The complaint also asks the OCC to refer the matter to the U.S. Securities and Exchange Commission if appropriate.

Last December, San Miguel also filed a civil action for theft and breach of contract and duty and substantial damages against BNY in California Superior Court, and that case is still ongoing.

Sall Spencer Callas & Krueger, a Laguna Beach, California-based law firm is leading the California litigation for San Miguel. Lanny Davis of Davis Goldberg & Galper PLLC is also counsel of record.

Contact: Eleanor McManus
[email protected]
(202) 899-3846 office
(202) 460-1451 cell   

SOURCE San Miguel Equities, LLC