Bank of New York faces trial in $600 mln fraud case

* Bank denies misconduct, defends actions

* Case stems from ’07 Sentinel Management Group bankruptcy

CHICAGO, April 19 (BestGrowthStock) – The Bank of New York Mellon
Corp (BK.N: ) is defending itself in a $600 million fraud case in
which the New York lender is accused of letting a client
improperly use investor funds to back loans from the bank.

The trial, which opened in federal court in Chicago on
Monday, was brought by the trustee of Sentinel Management
Group, a closely held cash management firm based in Northbrook,
Illinois that filed for bankruptcy in August 2007.

Sentinel, which managed money for futures brokers and hedge
funds, had its accounts at the Bank of New York, from which it
had borrowed more than $300 million at the time of Sentinel’s
collapse.

As a registered futures broker, Sentinel was required to
keep its customer funds separate from its own, but Sentinel
used those funds to back its loans from the Bank of New York,
the trustee argued in court papers.

“Sentinel, the bank knows, is playing the leverage game
with someone else’s assets,” Chris Gair, the Jenner & Block
attorney representing Sentinel’s trustee, told U.S. District
Judge James Zagel in an opening statement on Monday.

“It knows that Sentinel’s audited financials cannot
possibly be true because securities cannot be in two places at
one time,” Gair said. And that’s what they knew before
everything really started coming apart.”

Sentinel, which had only $2 million of its own capital,
collapsed after the credit markets seized up in the summer of
2007. Its founders later settled allegations that they
defrauded Sentinel’s customers.

The trustee, Frederick Grede, is seeking damages of about
$600 million from the bank.

The Bank of New York, the world’s largest custodian of
financial assets, denied any misconduct, saying in court papers
the arguments don’t stand up and should be dismissed.
(Reporting by Ann Saphir. Editing by Robert MacMillan)

Bank of New York faces trial in $600 mln fraud case