Sentinel trustee files lawsuits to avoid $65.55 million of account transfers

By Caroline Salls

Pittsburgh, Oct. 31 - Sentinel Management Group, Inc.'s Chapter 11 trustee filed two lawsuits Friday in the U.S. Bankruptcy Court for the Northern District of Illinois seeking to avoid a total of $65.55 million in pre-bankruptcy and post-bankruptcy transfers.

Specifically, trustee Frederick J. Grede filed lawsuits against Cadent Financial Services and Rand Financial Services.

Under the Cadent suit, Grede is looking to avoid $22.26 million in post-bankruptcy transfers "improperly made to or for the benefit of Cadent" and $20.19 million of preferential pre-bankruptcy transfers.

Meanwhile, Grede is looking to avoid $1.95 million in post-bankruptcy transfers allegedly made by Rand, as well as $20.19 million in preferential pre-bankruptcy transfers.

The trustee is also asking the court to declare that funds and securities held in allegedly segregated accounts are not property of either defendant or their customers, but are instead property of Sentinel's estate.

According to the lawsuits, Cadent and Rand are both Sentinel customers, and both have claimed that any assets held by Sentinel in any segregated accounts for Sentinel's SEG 1 customer pool are the property of customers in the SEG 1 pool, no matter the actual source of the funds or the circumstances under which they were deposited into the accounts.

Grede said Cadent and Rand's claims arise from "fictitious and fraudulent account statements created by certain insiders at Sentinel that purported to show segregation."

"In fact, there was no segregation of customer funds by Sentinel and its custodian bank, the Bank of New York," Grede said in his complaints.

"Sentinel and BONY commingled customer assets and treated all cash and securities controlled by Sentinel as being part of a single undifferentiated pool which was used principally for the benefit of the Sentinel insiders and BONY.

"As a result, the assets in supposedly segregated accounts were and are property of [Sentinel's] bankruptcy estate."

Sentinel, a Northbrook, Ill., investment adviser, filed for bankruptcy on Aug. 17, 2007. Its Chapter 11 case number is 07-14987.

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