Court Ruling in Sentinel Case May Affect MF Global Customers

by San Antonio Attorney

A court ruling in Sentinel Management Group’s case might make it harder for customers to recover the money they invested in MF Global, according to the bankruptcy trustee of Sentinel.

Bank of New York Mellon was put ahead of the customers in the waiting line of those who want to recover the money they invested in the failed brokerage. The ruling was upheld on Thursday by a federal appeals court.

The court affirmed a prior ruling that since Sentinel obtained a $312 million loan from Bank of New York Mellon, the bank had a “secured position.” But it turned out that it has been secured by the money of the customers.

Futures brokers are mandated to put the funds of their customers in separate accounts in order to secure them from being utilized for anything outside of the client business.

But based on the court’s ruling on Thursday, customer funds can be used by brokerages to pay other creditors, said Fred Grede, Sentinel’s bankruptcy trustee.

He said the Commodity Futures Trading Commission did not have that in mind when they made it a requirement for the brokers to separate the customers’ funds from their own. He thinks that the ruling does not go well for protecting the customers’ money.

Furthermore, Grede said, the court’s ruling implies that a brokerage will not be committing fraud if it mixed the customer funds with its own money.

For that reason, it might become harder to prove that MF Global was reckless in the way it used customer funds when it bet on European sovereign debt. Jon Corzine was the CEO when the company collapsed. There is a $1.6 billion shortfall of customer funds.

The former CEO of MF Global has not been charged with any crimes. Corzine has claimed he did not have any knowledge of any customer fund being transferred.

 

–       In a bankruptcy case, you need to protect your interests. For this reason it is important to have a San Antonio Bankruptcy attorney to properly represent you in court.

 

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