Dec 17 Bank of New York Mellon should be
ordered to return about $337 million to Sentinel Management
Group Inc, a U.S. futures broker that went bankrupt in 2007,
according to a court filing made by the bankruptcy trustee.
Sentinel's bankruptcy trustee, Frederick Grede, alleged that
the futures broker pledged hundreds of millions of dollars in
customer assets to secure an overnight loan from Bank of New
York Mellon, leaving the bank in a secured position but
Sentinel's customers with losses worth millions.
Sentinel largely managed money for other futures brokers,
who are required to keep customers' funds in dedicated accounts
to protect them from being used for anything other than client
However, at Sentinel, customer funds were allegedly moved
from the protected accounts to other accounts so that they could
be used as collateral for a loan from Bank of New York Mellon.
Sentinel had distributed the money back to the bank in
November 2010 in accordance with a U.S. District Court ruling
that had put the bank ahead of former customers of Sentinel, who
were also seeking to recoup money lost in the futures broker's
In August, the U.S. Court of Appeals for the Seventh Circuit
in Chicago reversed part of this ruling.
The trustee asked the court to order the bank to return
about $312.2 million in principal plus about $24.5 million in
interest that was previously distributed. The money would be
kept in a reserve account until final resolution of all claims
arising out of the bankruptcy.
Despite the appeals court ruling, Bank of New York Mellon
refused to return the $337 million to the reserve account,
according to the filing made on Monday.
Due to the appeals court ruling, the district court's
original judgment has been vacated and there is no longer "a
final appealable judgment", the trustee said in the filing.
He has asked the bankruptcy court in Northern District of
Illinois to schedule a hearing on Dec. 19.
Since Sentinel's collapse, the futures industry has been
rattled by the bankruptcies of two more brokers: MF Global in
2011 and Peregrine Financial Group in 2012. The heads of both
firms were alleged to have improperly used customer money.
Bank of New York Mellon could not immediately be reached for
comment by Reuters outside of regular U.S. business hours.
The bankruptcy case is Sentinel Management Group Inc, Case
No. 07-14987, U.S. Bankruptcy Court, Northern District Of
Illinois (Eastern Division).