* Appeals court overturns decision against FCStone
* Broker says ruling supports futures market stability
* FCStone faced $4 mln-$6 mln loss under previous order
* FCStone is a former customer of Sentinel
By Tom Polansek
CHICAGO, March 20 Commodities brokerage INTL
FCStone Inc can keep a $15.6 million payout of customer
funds related to the bankruptcy of Sentinel Management Group in
2007, a U.S. appeals court has ruled.
The decision, issued on Wednesday by three U.S. appeals
court judges in Chicago, overturned a federal district court's
previous order that New York-based FCStone return the money to
the trustee overseeing Sentinel's bankruptcy.
The previous ruling said FCStone had received too large a
payout compared with other former customers of Sentinel, an
investment adviser and futures broker. However, the appeals
court said fund transfers to FCStone before and after Sentinel's
bankruptcy were proper.
The reversal was an "important decision for FCStone and for
the futures industry as a whole," INTL FCStone Chief Executive
Sean O'Connor said on Thursday. "The protection of futures
market customer funds and the finality of bankruptcy
court-ordered distributions are crucial for the continued
stability of markets and our industry."
Sentinel managed investments for clients, including FCStone,
until it collapsed seven years ago, when prosecutors say that
executives moved customer money out of protected accounts to be
used as collateral for loans to Sentinel's own trading
Futures brokers are required to keep customers' funds in
dedicated accounts to protect them from being used for anything
other than client business.
Since Sentinel failed, brokerages MF Global and Peregrine
Financial Group collapsed in 2011 and 2012, respectively, after
misusing customer money. The bankruptcies shook confidence in
the futures industry.
At Sentinel, different categories of former customers
received different levels of distributions of their money
following the bankruptcy. FCStone was one of several brokers
that received a higher percentage of their money back than did
In January 2013, a U.S. district judge ordered FCStone to
return its $15.6 million payout to the bankruptcy trustee and to
receive a revised amount based on an equal distribution to all
former customers. The revision would have resulted in a pretax
loss of $4 million to $6 million for FCStone.
An $8 million deposit FCStone made with the district court
in the wake of the previous ruling will be refunded as a result
of the appeal, the company said.
Frederick Grede, the bankruptcy trustee, said in a telephone
interview on Thursday that he was reviewing his options after
the appeals court ruling.
The case is Sentinel Management Group, Inc. v. FCStone LLC,
U.S. Circuit Court for the Northern District of Illinois, No.
(Editing by Matthew Lewis)