FCSTONE, LLC'S MOTION FOR ENTRY OF AN ORDER DIRECTING THE TRUSTEE TO PAY FCSTONE, LLC ITS PRO RATA SHARE OF THE RESERVES
REBECCA R. PALLMEYER, District Judge.
Defendant, FCStone, LLC ("FCStone"), respectfully moves this Court for entry of an order directing the Trustee1 to pay FCStone its pro rata share of the SEG 1 Reserve and the Section 7.20(b) Disputed Claims Reserve. In support of its Motion, FCStone states:
1. On August 14, 2017, the Seventh Circuit: (a) affirmed then-presiding Judge James B. Zagel's judgment in favor of FCStone on Counts I and V of the Trustee's Second Amended Complaint; and (b) reversed Judge Zagel's judgment on Count III of that Complaint and directed this Court to enter judgment in FCStone's favor on that Count. Grede v. FCStone, LLC, 867 F.3d 767 (7th Cir. 2017). The Seventh Circuit had previously ruled in favor of FCStone on Counts II and IV of the Trustee's Complaint. Grede v. FCStone, LLC, 734 F.3d 244, 246-47, 251-260 (7th Cir. 2014). FCStone, thus, has prevailed on all Counts in the Trustee's Second Amended Complaint.
2. Once judgment is entered by this Court on Count III pursuant to the Seventh Circuit's mandate2, the case will be concluded, except for the Trustee's payout to FCStone of FCStone's pro rata share of the SEG 1 Reserve3 and the Section 7.20(b) Disputed Claims Reserve.4
3. With respect to Count III, which addresses these Reserves, the Seventh Circuit held that: (a) the money maintained by the Trustee in the SEG 1 Reserve was customer property (as opposed to property of Sentinel's estate); (b) as a result, FCStone and the other SEG 1 Defendants5 are entitled to the funds in the SEG 1 Reserve and the funds in the Section 7.20(b) Disputed Claims Reserve; and (c) the SEG 1 Reserve funds and the funds in the Section 7.20(b) Disputed Claims Reserve must be distributed pro rata to FCStone and the other SEG 1 Defendants:
The question concerns the proper distribution of nearly $25 million held in reserve under the confirmed bankruptcy plan. FCStone argues that these funds are trust property belonging to it and other creditors in its customer class who are protected by statutory trusts under the Commodity Exchange Act. The district court disagreed, treating the funds instead as property of the bankruptcy estate subject to pro rata distribution among all Sentinel customers and other unsecured creditors. On this cross-appeal, we reverse. Under the Bankruptcy Code, property held by the debtor in trust for others is by definition not property of the bankruptcy estate. Pursuant to the confirmed bankruptcy plan, FCStone and similarly situated customers preserved their right to re-cover their trust property. These creditors are entitled to the benefit of reasonable tracing conventions. Moreover, FCStone introduced essentially unrebutted evidence at trial showing that it can trace a portion of the reserve funds back to its investment.
* * *
FCStone is therefore entitled to judgment on Count III, and FCStone and the other SEG 1 objectors are entitled to share pro rata in the SEG 1 reserve.
* * *
In light of these provisions [of Sentinel's bankruptcy plan] and our conclusions about the post-petition transfer and SEG 1 reserve funds, the Section 7.20(b) Disputed Claims Reserve should be liquidated and the funds disbursed to the SEG 1 Objectors who would have received these funds but for the property of the estate dispute.
For the reasons we have explained, we AFFIRM the district court's judgment as to Counts I and V of the trustee's operative Second Amended Complaint. We reverse with respect to Count III and REMAND with instructions to enter judgment for FCStone on that count and for further proceedings consistent with this opinion.
Id. at 771, 790-91 (emphasis added).6
4. FCStone's total pro rata share of these Reserves is readily ascertainable. According to a reserve account summary that the Trustee recently provided to FCStone, FCStone's pro rata share of the funds in the SEG 1 Reserve was $1,796,058 as of July 31, 2017.7 (See Trustee's Reserve Account Summary, Ex. A). FCStone does not dispute this calculation. Indeed, the Reserve Account Summary is a statement of account that the Trustee, as the fiduciary of Sentinel's Liquidating Trust, is required to provide to FCStone.
5. Moreover, according to FCStone's calculations, FCStone's pro rata share of the Section 7.20(b) Disputed Claims Reserve was $218,346 as of June 30, 2017. (Goodman Aff. ¶12, Ex. B) Each SEG 1 Defendant's pro rata share of the Section 7.20(b) Disputed Claims Reserve is based on such customer's SEG 1 (and SEG 2, if applicable) balances as of the petition date divided by the aggregate SEG 1 and SEG 2 balances of the SEG 1 Defendants as of the petition date. (Id. at ¶6)
6. Thus, based on these calculations, the Trustee owes FCStone a total of $2,013,350, plus interest accruing from the date of the calculations.
WHEREFORE, FCStone respectfully requests the Court to enter an order:
(a) directing the Trustee to pay FCStone its pro rata share of the SEG 1 Reserve—$1,796,058 plus interest from July 31, 2017 to the date of payment—within seven days of the Court's entry of judgment on Count III;
(b) directing the Trustee to pay FCStone its pro rata share of the Section 7.20(b) Disputed Claims Reserve—$218,346 plus interest from June 30, 2017 to the date of payment—within seven days of the Court's entry of judgment on Count III; and
(c) granting all other relief that is necessary and appropriate to carry out the terms of the judgment and the Seventh Circuit's mandate.
Exhibit A
Non-Electing CB Claims Seg 1 Reserve: $24,626,984
Seg 2 Reserve: $4,567,042
SEG 1 SEG 2 SEG 3 TOTAL
Less Pro Rata Less Pro Rata
Petition Date Less 8/21 Citadel Share Seq 1 Net Seq I Claim Petition Date Share Seq 2
Balance Distibution Reserve* Balance Balance Reserve* Net Seq 2 Seg 3
Alaron (combined)** $165,038 ($114,699) ($14,228) $36,112 $2,303,605 (1,295,897) $1,007,708 $1,428,880 $2,472,700
American National $12,957,977 ($9,005,468) ($1,117,074) $2,835,435 $0 0 $0 $0 $2,835,435
Cadent $32,029,180 ($22,259,213) ($2,761,153) $7,008,814 $0 0 $0 $0 $7,008,814
County Hedging $15,800,128 ($10,980,562) ($1,362,088) $3,457,477 $0 0 $0 $1,281,988 $4,739,465
Crossland $7,664,020 ($5,326,270) ($660,695) $1,677,055 $0 0 $0 $0 $1,677,055
Farr $14,491,035 ($10,070,845) ($1,249,235) $3,170,955 $0 0 $0 $2,357,033 $5,527,988
FC Stone $20,834,149 ($14,479,039) ($1,796,058) $4,559,052 $0 0 $0 $0 $4,559,052
Fortis $75,910,845 ($52,755,816) ($6,544,079) $16,610,950 $5,003,403 (2,814,673) $2,188,730 $0 $18,799,681
IFX*** $49,224,290 ($34,209,441) ($4,243,499) $10,771,349 $0 0 $0 $5,617,214 $16,388,564
Penson (combined) $33,958,786 ($23,600,363) ($2,927,500) $7,430,924 $811,432 (456,472) $354,960 $653,284 $8,439,168
Peregrine $4,797,177 ($3,333,781) ($413,552) $1,049,844 $0 0 $0 $130,687 $1,180,531
Rand $2,803,738 ($1,948,505) ($241,703) $613,530 $0 0 $0 $0 $613,530
Velocity $15,034,885 ($10,448,744) ($1,296,119) $3,290,022 $0 0 $0 $2,486,105 $5,776,127
$285,671,248 ($198,532,745) ($24,626,984) $62,511,519 $8,118,440 (4,567,042) $3,551,398 $13,955,191 $80,018,108
Exhibit B
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
FREDERICK J. GREDE, not individually but as
Liquidation Trustee of Sentinel Liquidation Trust
Plaintiff,
v. Honorable Rebecca R. Pallmeyer
PENSON FINANCIAL FUTURES, INC. & Case No. 09-cv-00101
PENSON FUTURES f/k/a PENSON GHCO,
Defendants.
IFX MARKETS, INC., IPGL, LTD. & HAIN Case No. 09-cv-00115
CAPITAL HOLDINGS, LTD.,
Defendants.
FARR FINANCIAL, INC., Case No. 09-cv-00120
Defendant.
CADENT FINANCIAL SERVICES, Case No. 09-cv-00127
Defendant.
RAND FINANCIAL SERVICES, Case No. 09-cv-00128
Defendant.
COUNTRY HEDGING INC., Case No. 09-cv-00130
Defendant.
VELOCITY FUTURES, LP, Case No. 09-cv-00135
Defendant.
FCSTONE, LLC, Case No. 09-cv-00136
Defendant.
AMERICAN NATIONAL TRADING CORP., Case No. 09-cv-00137
Defendant.
ABN AMRO CLEARING CHICAGO LLC, Case No. 09-cv-00138
(f/k/a FORTIS CLEARING AMERICAS, LLC),
Defendant.
CROSSLAND LLC, Case No. 09-cv-00140
Defendant.
AFFIDAVIT OF GEOFFREY S. GOODMAN
I, GEOFFREY S. GOODMAN, depose and state as follows:
1. I am over twenty-one years old.
2. I am a partner at Foley & Lardner LLP ("Foley"), 321 North Clark Street, Suite 2800, Chicago, IL 60654, and have been duly admitted to practice in the State of Illinois, the Northern District of Illinois and the Seventh Circuit Court of Appeals, among other jurisdictions.
3. At all times relevant to this case, I have represented various of the SEG 1 Defendants, and am currently representing six of the SEG 1 Defendants.
4. I am submitting this affidavit in support of the SEG 1 Defendants' respective motions for entry of judgment (the "Motions").
5. On September 7, 2017, I received an email from Vincent Lazar, counsel for the Trustee, which attached a summary of the reserve amounts held for SEG 1 and SEG 2 customers, including a breakdown of the each of the SEG 1 Defendants' respective share of each reserve. The summary also listed the petition date balances for those SEG 1 Defendants holding SEG ¾ claims. A true and correct copy of the Trustee's Reserve Account Summary, with highlighting added and certain material redacted as set forth in footnote 8 of the Motions, is attached as Ex. 1.
6. Each SEG 1 Defendant's pro rata share of the Section 7.20(b) Reserve has been calculated based on such customer's SEG 1 (and SEG 2, if applicable) balances as of the petition date divided by the aggregate SEG 1 and SEG 2 balances of the SEG 1 Defendants as of the petition date. The pro rata share of a SEG 1 Defendant (that holds SEG ¾ claims) in the SEG ¾ Reserve is based on such SEG 1 Defendant receiving a 59% distribution on account of such SEG 1 Defendant's petition date SEG ¾ balance, as such balance was reflected on the Trustee's Reserve Account Summary.1
7. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, American National's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $135,802 as of June 30, 2017; and (b) SEG ¾ Reserve was $0 as of July 31, 2017.
8. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, Cadent's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $335,673 as of June 30, 2017; and (b) SEG ¾ Reserve was $0 as of July 31, 2017.
9. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, Country Hedging's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $165,588 as of June 30, 2017; and (b) SEG ¾ Reserve was $756,373 as of July 31, 2017.
10. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, Crossland's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $80,321 as of June 30, 2017; and (b) SEG ¾ Reserve was $0 as of July 31, 2017.
11. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, Farr's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $151,869 as of June 30, 2017; and (b) SEG ¾ Reserve was $1,390,649 as of July 31, 2017.
12. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, FCStone's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $218,346 as of June 30, 2017; and (b) SEG ¾ Reserve was $0 as of July 31, 2017.
13. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, ABN AMRO's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $847,999 as of June 30, 2017; and (b) SEG ¾ Reserve was $0 as of July 31, 2017.
14. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, IFX's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $515,881 as of June 30, 2017; and (b) SEG ¾ Reserve was $3,314,156 as of July 31, 2017.
15. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, Rand's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $29,384 as of June 30, 2017; and (b) SEG ¾ Reserve was $0 as of July 31, 2017.
16. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, Velocity's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $157,569 as of June 30, 2017; and (b) SEG ¾ Reserve was $1,466,802 as of July 31, 2017.
17. Applying the foregoing calculation to the reserve balances provided by the Trustee in Ex. 1, Penson's pro rata share of the: (a) Section 7.20(b) Disputed Claims Reserve was $364,399 as of June 30, 2017; and (b) SEG ¾ Reserve was $385,438 as of July 31, 2017.2
Pursuant to 28 U.S.C. § 1746, I Geoffrey S. Goodman, declare under penalty of perjury that the foregoing is true and correct.
FURTHER YOUR AFFIANT SAYETH NAUGHT.
