A federal appeals court on Friday set back Bank of New York Mellon Corp's effort to recoup $312 million it lent to Sentinel Management Group Inc, a money manager that collapsed in 2007 and whose former chief is now in prison for fraud, Reuters reported. The U.S. Court of Appeals for the Seventh Circuit said that a lower court judge reviewing bankruptcy trustee Frederick Grede's lawsuit erred in clearing the bank of wrongdoing in its dealings with Sentinel and its chief executive officer, Eric Bloom. Writing for the appeals court, Circuit Judge Richard Posner said the bank should be treated as an unsecured Sentinel creditor, not a secured creditor, because it was aware of suspicious facts that should have led it to investigate whether Northbrook, Ill.-based Sentinel was up to no good. Judge Posner also rejected Grede's argument that the bank's claim should be pushed further behind other claims, saying the trustee did not show that the bank acted deliberately to avoid confirming its belief there was a high probability of fraud.
