Sentinel trustee claims Bank of New York aided firm's collapse
Bank of New York Mellon Corp. helped cause the collapse of cash manager Sentinel Management Group Inc. and should pay $550 million, Sentinel's bankruptcy trustee said in a lawsuit Monday.
Frederick J. Grede accused Bank of New York, the world's largest custodian of financial assets, of playing a "pivotal role" in Sentinel's implo-sion, which cost customers hundreds of millions of dollars. Grede filed the lawsuit in U.S. Bankruptcy Court in Chicago on behalf of Sentinel, based in Northbrook.
Sentinel filed for bankruptcy Aug. 17, four days after it froze investor assets citing credit market instability. The U.S. Securities and Exchange Commission sued the firm, accusing it of commingling client funds and using them as collateral for loans.
Bank of New York "aided and abetted breaches of fiduciary duty committed by certain Sentinel insiders," Grede wrote in the lawsuit. The judge overseeing Sentinel's liquidation appointed Grede, former chief executive officer of the Hong Kong Futures Exchange, to run the company last year.
Grede's action follows a lawsuit filed Feb. 28 by Bank of New York asking U.S. Bankruptcy Court Judge John H. Squires to declare its liens against Sentinel valid. The bank claims it is owed $31 2 million.
"The trustee's claims are totally without merit," Bank of New York spokesman Kevin Heine said in an interview. "We will continue to vigor-ously pursue our claim in this case."
In September, Chicago investor Henry Shatkin sued Bank of New York and Sentinel's management in New York and Chicago, accusing the bank of helping Sentinel take out large loans secured by customer assets.
The SEC claimed Sentinel, which managed $1.6 billion in assets according to pre-bankruptcy financial filings, used client assets as collateral to obtain a $312 million credit line.
Grede has also sued Sentinel President Eric Bloom, three other executives and 10 related entities, including trusts in the names of Bloom and his parents, seeking to recoup $350 million. Bloom, his father and the top trader at Sentinel agreed to hand over $10 million to Grede in October. The money was to be held in escrow pending the outcome of the trustee's lawsuit.