CHICAGO, Aug 9 (Reuters) - A federal appeals court has upheld a ruling that puts Bank of New York Mellon in line ahead of former customers of Sentinel Management Group to be paid back money lost in the 2007 collapse of the futures broker.

The appeals court affirmed an earlier district court ruling that Bank of New York Mellon had a "secured position" on a $312 million loan it gave to Sentinel.

Sentinel allegedly pledged hundreds of millions of dollars in customer assets to secure an overnight loan at the bank, leaving the bank in a secured position but Sentinel's customers out millions.

Futures brokers are required to keep customers' funds in dedicated accounts to protect them from being used for anything other than client business. At Sentinel, customer funds were allegedly moved from the protected accounts to other accounts so they could be used as collateral for loans to Sentinel's own trading operations.

The appeals court said that "perhaps the bank should have known that Sentinel violated segregation requirements" but agreed with the district court's earlier ruling that "such a lack of care does not rise to the level of the egregious misconduct" needed to reprioritize a claim.

A bank spokesman could not immediately be reached for comment.

The decision is a blow for Frederick Grede, the trustee in Sentinel's bankruptcy, who had sought to strip Bank of New York Mellon of its secured position.

Sentinel largely managed money for other futures brokers, delivering outsized returns that, Grede says, were juiced up by improperly using customer money to secure loans that went to fund risky trades.

The scheme unraveled when the credit crisis hit in the summer of 2007.

(Reporting by Tom Polansek and Ann Saphir; Additional reporting by Jonathan Stempel)

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