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Bank of New York Mellon already has more than its share of headaches from litigation and threats of more litigation over mortgage-backed securities (see here and here, for example). Now the bank has a new migraine, courtesy of the great state of South Carolina. On Thursday, South Carolina treasurer Curtis Loftis announced the filing of a complaint in the South Carolina court of common pleas. The new suit accuses BoNY of costing the state $200 million in losses due to improper investments in mortgage-backed securities. The bank began managing the state’s investments in 2000. Between 2005 and 2007, according to the complaint, BoNY bought securities for South Carolina’s accounts without adequately disclosing that they were backed by subprime mortgages. In some cases, the state asserts, Bank of New York or its affiliates didn’t disclose potential conflicts of interest in buying the securites on the state’s behalf. “Our contract called for investments limited to conservative, high quality instruments,” Loftis said in a statement. “The bank inappropriately invested in mortgage-backed securities comprised of subprime mortgages with maturity dates greater than [the South Carolina contract] allowed.” Loftis only recently took office, and decided to press ahead with the suit against BoNY after reviewing the results of an investigation initiated by his predecessor, fellow Republican Converse Chellis. Outside counsel Mitchel Willoughby of Willoughby & Hoefer and Michael Montgomery of Montgomery Willard represented the state in the inquiry. Bank of New York said in a statement, “The lawsuit is without merit and we intend to defend ourselves vigorously.” No word yet on the bank’s counsel.

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