By Tom Polansek
CHICAGO, Jan 7 (Reuters) - INTL FCStone must return $15.6
million to the trustee overseeing the bankruptcy of Sentinel
Management Group because other former clients were not equitably
repaid money they had invested in the failed futures brokerage,
a federal judge in Chicago has ruled.
FCStone, a New York-based commodities brokerage with many
farmers as clients, has received about 70 percent of the money
it had invested with Sentinel, while other former customers have
received back roughly 35 percent, said the trustee, Frederick
Grede, in an interview.
Grede had asked U.S. District Judge James Zagel to allow
creditors to receive more balanced payouts.
"If there is one prevailing principle that underpins
American bankruptcy laws, it is that 'equality is equity,'"
Zagel wrote in a ruling in favor of Grede issued on Friday.
Sentinel collapsed in 2007 after it allegedly moved customer
funds from protected accounts to other accounts so they could be
used as collateral for loans to Sentinel's own trading
Futures brokers are required to keep customers' funds in
dedicated accounts to protect them from being used for anything
other than client business.
Since Sentinel failed, brokerages MF Global and
Peregrine Financial Group went bankrupt in 2011 and 2012,
respectively, after misusing customer money. The bankruptcies
have shaken confidence in the futures industry.
At Sentinel, different categories of former customers have
received different levels of distributions of their money.
FCStone is one of several futures commission merchants that
received a higher percentage of their money back than did other
FCStone was the "first test case" the trustee had pursued to
claw back some former clients' money, Grede said.
Prior to Zagel's decision, former Sentinel customers were
missing $500 million to $550 million, Grede said. The ruling
against FCStone "will put a dent into that shortfall," he said.
FCStone may appeal the decision.
"FCStone is disappointed and is surprised and is considering
its options," said Stephen Bedell, a lawyer for the company.
Bedell said the distribution of money to FCStone in 2007 was
supported by industry regulators and that Zagel's ruling was
wrong because it takes former Sentinel customers' own money away
If Zagel's ruling is upheld, FCStone will pay the judgment
out of its own pocket and will not assess customers for any part
of the loss, Bedell said. FCStone would still be entitled to its
proportionate share of the money paid to former Sentinel
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