Appeal Decision in Favor of INTL FCStone in Sentinel Case Becomes Final
21 August 2014 - 11:00PM
INTL FCStone Inc. (Nasdaq:INTL) ("the Company") announced on March
19, 2014 that the U.S. Court of Appeals for the Seventh Circuit had
reversed the trial court's January 2013 decision against its
subsidiary, FCStone, LLC, in the Sentinel matter. Because the
bankruptcy trustee for Sentinel did not seek review of the Seventh
Circuit's ruling in the U.S. Supreme Court before the time allotted
for appeal expired, the Seventh Circuit's ruling in favor of
FCStone is now considered final.
The appeal court's reversal will have no financial impact on the
Company, which had considered the possibility of losing the appeal
to be remote and, accordingly, made no provision in its financial
statements for any further loss in this matter. The $8 million
appeal cash deposit made by FCStone with the court has been
refunded.
The company had disclosed that the trial court's decision, if it
had been allowed to stand, would have resulted in a net pre-tax
loss to FCStone of between $4 million and $6 million. Such an
adverse outcome is no longer a possibility. In addition, the
original decision could have undermined the integrity of the
futures industry's system of segregated customer accounts and the
CFTC regulations designed to protect those accounts. The appeal
court's reversal of the decision vindicates the commitment of
FCStone and the futures industry to protecting customer segregated
funds.
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 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 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 have resulted in a net pre-tax
loss to FCStone of between $4 million and $6 million. It was this
decision that FCStone successfully appealed.
Sean O'Connor, CEO of INTL FCStone, said at the time of the
appeal court's decision in March 2014, "We are pleased that the
appeal court's ruling vindicates our position. This is an important
decision for FCStone and for the futures industry as a whole. The
protection of futures market customer funds and the finality of
bankruptcy court-ordered distributions are crucial for the
continued stability of markets and our industry."
About INTL FCStone Inc.
INTL FCStone Inc., including its subsidiaries, is a leader in
the development of specialized financial services in commodities,
securities, global payments, foreign exchange and
other markets. Our revenues are
derived primarily from financial products and advisory
services that fulfill our clients' real needs and provide
bottom-line benefits to their businesses. We create
added value for our clients by providing access to global
financial markets using our industry and
financial expertise, deep partner and network
relationships, insight and guidance, and integrity and
transparency. Our client-first approach
engenders trust, and has enabled us to establish
leadership positions in a number of complex fields in
financial markets around the world.
Further information on INTL FCStone is available at
www.intlfcstone.com.
CONTACT: INTL FCStone Inc.
Kent Coughlin
615-234-2756
kent.coughlin@intlfcstone.com