August 26, 2013

On August 26, 2013, Jenner & Block achieved a significant win for firm client Frederick Grede, the bankruptcy trustee of Sentinel Management Group.  Mr. Grede has been pursuing litigation against the Bank of New York (BONY) for the benefit of Sentinel customers who lost more than $600 million in Sentinel’s fraud scheme.  The United States Court of Appeals for the Seventh Circuit reversed the trial court and ruled that Sentinel had fraudulently transferred collateral to BONY and avoided $312 million in liens.  The court also remanded Mr. Grede’s claim for equitable subordination for further consideration, noting that while equitable subordination is rarely granted against non-insiders, the district court’s findings might make subordination appropriate here.  If the district court subordinates BONY’s claim on remand, BONY would be paid behind all other creditors.

Sentinel, one of the largest commodity broker failures ever, unlawfully pledged hundreds of millions of dollars in customer assets to secure an overnight loan at BONY.  On behalf of the trustee, firm attorneys brought a variety of claims against BONY, including fraudulent transfer claims, arguing that Sentinel acted with actual intent to hinder, delay or defraud its customers when it took money out of segregated accounts and pledged it as collateral to BONY.  The team also argued that because BONY knew what Sentinel was doing, the bank had engaged in inequitable conduct, and, therefore, its claims should be equitably subordinated to the claims of other Sentinel customers and creditors.    

Partner Catherine L. Steege argued the appeal to the Seventh Circuit in September 2011.  Partners  Barry Levenstam, Michael T. Brody, Vincent E. Lazar and Christine L. Childers and Associates Angela M. Allen and Nicole A. Allen also worked on the appeal.  Partners Michael L. Cebula, Jeffrey S. Eberhard and J. Kevin McCall and Associate Michael H. Margolis represented Mr. Grede at trial.