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State Treasury and BNY Mellon Resolve Sigma Claim

The state Treasury and the two largest state public pension systems have reached an agreement with BNY Mellon
The state Treasury and the two largest state public pension systems have reached an agreement with BNY Mellon to recover a portion of the funds lost in connection with an investment in Sigma Finance Inc. during the severe national economic downturn of 2007-08.

Under the settlement, BNY Mellon will pay Treasury, the State Employees’ Retirement System (SERS) and the Public School Employees’ Retirement System (PSERS) a combined $19 million. Treasury also previously recouped $22 million in fees from BNY Mellon during the years since the Sigma loss arose in 2008. The state agencies also recovered $6.4 million from Sigma.

In addition, Treasury has entered into a new custodial and an amended securities lending agreement with BNY Mellon.

“Obviously, many public and private funds suffered significant and permanent losses when the Great Recession hit,” said state Treasurer Rob McCord. “We are pleased to reclaim a substantial share of the money from this investment for Pennsylvania tax payers.”

George Gilmer, Head of Asset Servicing – Americas for BNY Mellon, said, “We are pleased to reach an agreement with Treasury that resolves our issues and allows us to continue our long-standing relationship with the Commonwealth of Pennsylvania.”

Losses to the three state agencies totaled $133.4 million following Sigma’s default in 2008. McCord sought a recovery from BNY Mellon beginning shortly after he took office in January 2009. The negotiations were conducted by Treasury’s legal staff on behalf of the three state parties, without expense of outside counsel.

“I’m proud of the professionals at PSERS and SERS and our legal counsel at Treasury who worked long and hard to ensure the best possible deal for the public and for our retirees,” McCord said.

After Treasury reached agreement with BNY Mellon, the Boards of SERS and PSERS approved the settlement agreement. The agreement was then forwarded for required legal review to the Office of Attorney General, which approved it.

The losses involved investment of cash collateral resulting from securities lending activity. BNY Mellon serves as the custodial bank and securities lending agent for commonwealth funds, including holding all of the commonwealth’s securities. Under a securities lending agreement, the bank can loan those securities to third-party borrowers to facilitate certain strategies. The borrowers provide collateral in excess of the value of the loaned securities, often in form of cash. BNY Mellon then invests that cash on the commonwealth’s behalf in accordance with guidelines contained in the securities lending agreement. The bank’s purchase of Sigma securities was made under that agreement.

The settlement averts a costly and unpredictable lawsuit and allows the commonwealth to continue its custodial relationship with BNY Mellon.

“While investment losses are always unfortunate, I’m pleased that we were able to cooperate with BNY Mellon to mitigate those losses for Pennsylvania, and continue to partner with BNY Mellon as our custodial financial institution,” McCord said.

For more information, visit www.patreasury.gov.
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