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)
Write to Joseph Checkler at joseph.checkler@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires