The
ruling in the case of failed futures brokerage Sentinel Management Group could make it difficult for customers to recoup money lost in the much larger collapse of Obama crony Jon Corzine's MF Global. According to Reuters:
A federal appeals court on Thursday upheld a ruling that puts Bank of New York Mellon ahead of former customers of Sentinel in the line of those seeking the return of money lost in the 2007 failure of the suburban Chicago-based futures broker.
The appeals court affirmed an earlier district court ruling that the bank had a "secured position" on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money.
Futures brokers are required to keep customers' funds in dedicated accounts to protect them from being used for anything other than client business.However, Thursday's ruling suggests that brokerages can use customer funds to pay off other creditors, Sentinel trustee Fred Grede told Reuters.
"I don't think that's what the Commodity Futures Trading Commission had in mind" with its requirement that brokers keep customer money separate from their own, he said.
"It does not bode well for the protection of customer funds."
Worse, Grede said, is that the ruling suggests that a brokerage that allows customer money to be mixed with its own is not necessarily committing fraud.
That may raise the bar for proving that MF Global Holdings Ltd, under then-CEO Jon Corzine, misused customer funds as it scrambled to meet margin calls to back bets on European debt in the brokerage's final days. A $1.6 billion customer shortfall remains.
"I'm sure Mr. Corzine's attorneys will get ahold of this ruling and use it for all it's worth," Grede said.
The Sentinel ruling is a clear example of crony capitalism at work.
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