Sentinel Trustee Seeks to Get Back $337 Million From BNY Mellon
By Joseph Checkler
The trustee unwinding collapsed cash-management firm Sentinel Management wants to get back nearly $337 million from Bank of New York Mellon (BK) , its lender and securities clearing bank to Sentinel before its 2007 collapse.
In a Tuesday filing with U.S. Bankruptcy Court in Chicago, Sentinel said that when a U.S. District Court recently vacated a judgment that had previously gone in BNY Mellon's favor, the bank should have turned over the money in accordance with Sentinel's liquidation plan.
"The Plan expressly provided that in such circumstance BONY would return all amounts it had previously been paid," Sentinel lawyers said in the filing. "Despite the Plan's clear and express terms, BONY has refused to return the amount it was paid to the reserve account." A spokesman for BNY Mellon didn't immediately respond to a request for comment.
The money, currently $312.2 million in principal and $24.5 million in interest, went to BNY Mellon after the bank won a court case against Sentinel in 2010 over its claim. But earlier this year, an appeals court vacated that judgment and said that BNY Mellon was aware of at least some of the executives' "misconduct" that led to Sentinel's collapse. In its filing, Sentinel notes a provision of the 2010 decision that calls for the money to go back to Sentinel's trustee if the decision ever got reversed. That money, Sentinel says, should now be he held and invested through an account reserved for BNY Mellon's claim, which is still being disputed.
Sentinel filed for bankruptcy in August 2007, after its leaders mismanaged investor funds in what its bankruptcy trustee called a "massive fraud." Former Chief Executive Eric Bloom and head trader Charles Mosley allegedly used client funds to back a BNY Mellon loan, and then allegedly used the money to buy riskier securities on behalf of Sentinel employees and some members of Mr. Bloom's family, according to a 20-count indictment by federal prosecutors in June 2012.
The indictment alleges that they defrauded more than 70 clients out of more than $500 million. In October, Mr. Mosley pleaded guilty to two counts and said he would cooperate with the investigation. Mr. Bloom's trial is set to begin early next year.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
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