TexasCHLforum.com

The appeals court affirmed an earlier district court ruling that the bank had a "secured position" on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money.

However, Thursday's ruling suggests that brokerages can use customer funds to pay off other creditors, Sentinel trustee Fred Grede told Reuters.

Sentinel allegedly pledged hundreds of millions of dollars in customer assets to secure an overnight loan at Bank of New York Mellon, leaving the bank in a secured position but Sentinel's customers out millions.

Customer funds were allegedly moved from the protected accounts to other accounts so they could be used as collateral for loans to Sentinel's own trading operations.

Sentinel took customer segregated money and fraudulently used it as the collateral on a loan from Bank of New York Mellon for $312 million to fund their own in-house proprietary trading operations. When the Sentinel Ponzi collapsed, BNYM sued to go to the front of the line of creditors - ahead of the customers of Sentinel whose money was fraudulently used as collateral, which has now been "linguistically sanitized" into the word "hypothecated".

The federal appeals court ruled yesterday that not only does BNYM stay at the front of the line, but that using customer segregated funds as collateral is NOT a crime, and that co-mingling customer segregated funds with proprietary funds is NOT fraud.

a bribed or otherwise coerced Federal Appeals Court, explicitly stating that an FCM can use customer deposits to pay its debts, and that the customers themselves are subjugated and have basically no legal right to their own monies, no matter what the law says, or what legal assurances, claims or guarantees are made to that customer about their funds held with an FCM or any other brokerage or depository institution. The "secured" party at the front of the line will always be the mega-bank who made the fraudulent loan using the stolen customer funds as collateral.

In other words, all customer funds in the United States are now the legal property of JP Morgan, Goldman Sachs, BNYM, or whichever megabank is the counterparty on the loans the FCM or depository institution takes out in order to fund its mega-levered proprietary in-house trading desks.

AEA wrote:Our response should be to remove all money from all bank accounts and close the accounts. See how they like using their own money instead of ours!

The Annoyed Man wrote:

AEA wrote:Our response should be to remove all money from all bank accounts and close the accounts. See how they like using their own money instead of ours!

When people did that under FDR's administration, he merely forced the banks to close until things settled down. With his record of directives, Obama would do the same, arguing that "runs on banks" are bad for the economy. Congress would back him up.

gringo pistolero wrote:

The Annoyed Man wrote:

AEA wrote:Our response should be to remove all money from all bank accounts and close the accounts. See how they like using their own money instead of ours!

When people did that under FDR's administration, he merely forced the banks to close until things settled down. With his record of directives, Obama would do the same, arguing that "runs on banks" are bad for the economy. Congress would back him up.

Go ahead and take your money out of banking and brokerage accounts. Unless one of you is Bill Gates, I don't think closing your accounts will cause a bank rush.

equin wrote:Here's another quote from that reuters.com article in the original post:

"Futures brokers are required to keep customers' funds in dedicated accounts to protect them from being used for anything other than client business.

However, Thursday's ruling suggests that brokerages can use customer funds to pay off other creditors, Sentinel trustee Fred Grede told Reuters.

"I don't think that's what the Commodity Futures Trading Commission had in mind" with its requirement that brokers keep customer money separate from their own, he said.

"It does not bode well for the protection of customer funds."

Worse, Grede said, is that the ruling suggests that a brokerage that allows customer money to be mixed with its own is not necessarily committing fraud."

Not sure how this compares, but I think it interesting to not that under most state attorney bar regulations, if an attorney mixes client funds with his/her own, the attorney could get their license suspended, if not outright disbarred.

Customer grants **** the right to pledge, re-pledge, hypothecate, invest with or loan to **** as broker or to others any of Customer's Property held by ****, separately or together with any Property of other customers, as margin or collateral for Customer's Account(s) (including, without limitation, ****'s right to engage in securities repurchase and reverse repurchase agreements with others). Customer agrees that **** shall not be required to deliver the identical Property delivered or purchased by **** for any of
Customer's Account(s).

VMI77 wrote:No rule of law......your money can be taken at anytime and you have no recourse....