The Supreme Court on Monday refused to consider Bank of New York Mellon Corp.'s challenge to a lawsuit that claims it helped another firm defraud and deceive a group of clients.
The financial services company wanted the high court to reverse a lower court's ruling that made way for a trustee liquidating Sentinel Management Group Inc.'s assets to sue the bank on behalf of some Sentinel clients.
Sentinel, an Illinois futures commission merchant and investment manager for commodity brokers, filed for bankruptcy in August 2007.
The defunct business has since been the target of federal enforcement actions. The Commodity Futures Trading Commission has accused Sentinel of fraud and violating federal rules that require firms to keep customers' assets separate. The Securities and Exchange Commission in a 2007 fraud case against Sentinel accused it of secretly mixing client assets with its own accounts, using them as collateral for millions of dollars in credit.
Meanwhile, Bank of New York Mellon, Sentinel's lender and securities clearing bank, has been accused of misconduct as well. In court documents, Sentinel liquidation trustee Frederick Grede alleges that in 2003, Sentinel secretly started engaging in riskier investment strategies, financed by a Bank of New York Mellon loan that was backed by assets Sentinel had no right to pledge.
In 2009, Grede brought a lawsuit against the bank on behalf of some Sentinel clients, claiming that it had a hand in Sentinel's misconduct.
A U.S. district court dismissed the suit, concluding that the trustee lacked authority to sue a third party on behalf of the Sentinel customers. But earlier this year, a U.S. appeals court in Chicago said the law did allow for the trustee to pursue third-party claims.
The Supreme Court let that ruling stand without comment.
In its petition to the high court, Bank of New York Mellon said the appeals court decision risked "immense harm to the bankruptcy process" and deepened a split in the federal courts over the scope of trustee litigation authority. The bank said Grede should be gathering estate assets for Sentinel creditors, not trying to obtain damages for a select group of creditors based on their personal claims against Bank of New York Mellon. It also criticized an arrangement that allows for legal services to be paid out of the estate.
