Sentinel Capital Management’s bankruptcy trustee Frederick J. Grede and the Bank of New York Mellon Corp. (BONY) have filed dueling lawsuits in Illinois bankruptcy court. BONY was custodian of securities on behalf of Sentinel and its customers, clearing agent for Sentinel’s securities transactions and a lender.
BONY seeks $312 million for collateral other than segregated funds.
Grede counters BONY established a flawed account structure for Sentinel that commingled customer assets and facilitated misuse of customer assets, allowing BONY to apply the proceeds from customer transactions to pay down Sentinel’s debt to BONY.
Grede also says BONY aided and abetted breaches of fiduciary duty committed by Sentinel insiders, who misused customer securities for their own benefit and caused Sentinel to lose hundreds of millions of dollars. Further, Grede alleges that BONY knowingly colluded and facilitated the misconduct. He also says that BONY knowingly accepted fraudulent and preferential transfers as part the insiders’ scheme, engaged in inequitable conduct and violated the Commodity Exchange Act and the Investment Advisers Act of 1940.
