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INTL FCStone Reacts To Sentinel Judgment

Stocks in this article: INTL

NEW YORK, Jan. 8, 2013 (GLOBE NEWSWIRE) -- INTL FCStone Inc. (Nasdaq:INTL) today announced that it is considering its legal alternatives, including appeal, in response to the judgment rendered by the U.S. District Court, Northern District of Illinois, on January 4, 2013 against its subsidiary, FCStone, LLC ("FCStone"), in the matter of Frederick J. Grede (as Liquidation Trustee of the Sentinel Liquidation Trust) vs FCStone, LLC. In the view of FCStone, a futures commission merchant regulated by the CFTC, the court's ruling, if upheld, could undermine the integrity of the futures industry's system of segregated customer accounts and the CFTC regulations which are designed to protect those accounts from the claims of creditors.

Unless successfully appealed, the court's ruling would result in a net pre-tax loss to FCStone of between $4 million and $6 million. FCStone is committed to the protection of its customers, and the court's ruling will not affect its customers in any way. 

The case arises from the 2007 bankruptcy of Sentinel Management Group, Inc. ("Sentinel"), an SEC-registered investment adviser and CFTC-regulated futures commission merchant. Sentinel, in accordance with CFTC regulations, invested customer funds on behalf of FCStone and many other futures commission merchants. Sentinel also invested funds deposited by hedge funds and other securities investors. In August 2007, Sentinel declared bankruptcy. Shortly thereafter, a Chicago federal district court ordered Sentinel to return all remaining customer funds which had been deposited by the futures commission merchants, including FCStone, and Sentinel did so. At that time, FCStone itself covered any account shortfall in order to ensure that its customers suffered no harm due to the insolvency of Sentinel. 

Approximately a year later, the Sentinel bankruptcy trustee filed virtually identical lawsuits against FCStone and approximately a dozen other futures commission merchants, seeking a return of the August 2007 distribution of customer funds. The trustee has never alleged any wrongdoing on the part of FCStone or the other futures commission merchants. Rather, the trustee simply claimed that the futures commission merchants, including FCStone, received a greater percentage of their account balances than the other Sentinel customers. The trustee has argued that FCStone and the other futures commission merchants should receive, from the bankruptcy estate, the same percentage as the other Sentinel customers, and no more. On January 4, 2013, in a "test case" decision, the federal district court ruled that FCStone should return its original distribution of $15.6 million and receive a revised distribution based on an equal distribution to all of Sentinel's customers, which would result in a net pre-tax loss to FCStone of between $4 million and $6 million.

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