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Bank of New York Loses Yet Another Round In Court
NEW YORK, DECEMBER 18 (MT) – A decision and order filed on December 15 in the Supreme Court of the State of New York denied BoNY’s request to halt BoNY shareholders' investigation into alleged corruption and money laundering by BoNY’s highest management.
Justice Beatrice Shainswit's decision came on the heels of a similar ruling by US District Court judge Denny Chin who likewise denied BoNY's motion to stay discovery in a parallel suit brought in federal court.
BoNY lawyers at Sullivan and Cromwell vigorously argued to both the state and the federal judges that BoNY should be permitted to investigate shareholders' allegation on its own. To that end BoNY management hastily formed a so-called "special litigation committee" (SLC) consisting of three members of the bank's board of directors, who were ostensibly "independent" and "disinterested." Shortly thereafter one of the three directors was disqualified because his impartiality was called to question.
The SLC retained the prominent Washington law firm of Venable, Batcher, Howard and Civiletti, headed by former US Attorney General Benjamin Civiliti , to conduct the probe into the charges brought by BoNY shareholders. Last October the Venable firm was likewise hired by the World Bank to investigate widely reported alleged misconduct of its Russian former official, Leonid Grigoriev, involving a defunct Russian bank Inkombank. After eight months of investigation conducted in utmost secrecy, Venable reportedly found no evidence to support allegations levied against Grigoriev, clearing the cloud hanging over the World Bank.
On November 13, judge Chin of the US District Court for the Southern District of New York denied BoNY's request to stay the shareholder action to give the remaining two directors time to investigate shareholders allegations on their own. Noting that there is a “substantial question” whether the newly formed SLC is truly independent, judge Chin wrote in his decision: “it is difficult to imagine that the SLC will reach any conclusion other than that the [shareholders’] complaint lacks merit...” (See “Judge Doubts the Bank of New York can Investigate Itself (MT, November 13, 2000)
Immediately thereafter, Sullivan & Cromwell filed additional papers with the court asking the federal judge to reconsider his decision. Judge Chin once again denied the motion concluding that the plaintiffs have shown “extraordinary circumstances” requiring discovery to proceed. (See Judge in Bank of New York Case Concludes Charges are not Frivolous)
The bank has previously claimed that the suit is baseless and the charges ``scurrilous" and "based almost entirely on unsupported allegations provided by Emanuel Zeltser”, a director of the American Russian Law Institute and a lawyer in a companion lawsuit brought against BoNY by depositors of Inkombank. (See Bank of New York Management Attacks Director of American Russian Law Institute (MT 09/12/2000)
However the judge ruled that the “substantial charges” against BoNY have been supported by “detailed factual allegations” and are "nonfrivolous."
Justice Shainswit fully concurred with the federal judge. In her decision she wrote that "the misconduct [of BoNY's directors], as alleged, was illegal, occurred in a heavily regulated industry, took place over a period of six or seven years, and involved billions of dollars." The court found that under the circumstances it would be "futile to expect the [BoNY] directors to launch vigorous investigation" into the alleged criminal misconduct of its senior officers.
The New York law firm Milberg Weiss Bershad Hynes & Lerach, LLP brought the lawsuit against the bank’s directors alleging massive corruption and negligence by BoNY’s highest echelon, including its CEO, Thomas Renyi. A similar lawsuit was filed on behalf of the shareholders in the State Supreme Court by the law offices of Richard B. Brualdi.
In February of this year, BoNY’s former senior vice president, Lucy Edwards pled guilty to a variety of federal charges including money laundering and fraud. BoNY itself has not yet been charged with wrongdoing and is reported to be cooperating with ongoing investigations by the FBI and the Federal Reserve Bank of New York. END
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