Sentinel Management Group customer funds return appeal ruling final

By Caroline Salls

Pittsburgh, Aug. 21 – A ruling related to the return of Sentinel Management Group, Inc.’s customer funds has become final because Sentinel’s bankruptcy trustee did not seek review of the ruling made in March by the U.S. Court of Appeals for the Seventh Circuit, according to a news release from INTL FCStone Inc.

The appeals court ruling was in favor of INTL FCStone subsidiary FCStone, LLC and reversed a trial court’s January 2013 decision against the subsidiary.

According to the release, Sentinel, in accordance with CFTC regulations, invested customer funds on behalf of FCStone and many other futures commission merchants. Sentinel also invested funds deposited by hedge funds and other securities investors.

Shortly after Sentinel declared bankruptcy in August 2007, a Chicago federal district court ordered it to return all remaining customer funds, which had been deposited by the futures commission merchants, including FCStone.

INTL said Sentinel returned the funds. At that time, FCStone covered any account shortfall in order to ensure that its customers suffered no harm as a result of Sentinel’s insolvency.

About a year later, INTL said the Sentinel bankruptcy trustee filed virtually identical lawsuits against FCStone and roughly a dozen other futures commission merchants, seeking a return of the August 2007 distribution of customer funds.

The trustee did not allege any wrongdoing, INTL said, but claimed that the futures commission merchants, including FCStone, received a greater percentage of their account balances than the other Sentinel customers.

On Jan. 4, 2013, a federal district court ruled in a “test case” decision that FCStone should return its original distribution of $15.6 million and receive a revised distribution based on an equal distribution to all of Sentinel's customers.

This distribution would have resulted in a net pre-tax loss to FCStone of between $4 million and $6 million, the release said. FCStone successfully appealed the district court ruling.

“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,” INTL chief executive officer Sea O’Connor said at the time of the appeals court’s decision in March.

Sentinel, a Northbrook, Ill., investment adviser, filed for bankruptcy on Aug. 17, 2007 in the U.S. Bankruptcy Court for the Northern District of Illinois. Its Chapter 11 case number is 07-14987.

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