Securities Law

SEC Sues Sentinel

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The Securities and Exchange Commission filed civil fraud charges yesterday against Sentinel Management Group, alleging the short-term investment management company misled clients about the reasons it was freezing a $1.5 billion fund.

The actions followed Sentinel’s bankruptcy filing on Friday, reports the New York Times’ DealBook blog. Sentinel told clients in an Aug. 13 letter that it couldn’t abide by their requests to withdraw money because the liquidity crisis would force it to sell securities at deep discounts.

The complaint, filed in federal court in Chicago, called the claim false and misleading. It alleges Sentinel’s cash problems are due to “undisclosed use of leverage, commingling and misappropriation of clients’ securities,” the Wall Street Journal reports (sub. req.).

The Chicago Tribune reports that many of Sentinel’s clients are futures brokers who need immediate access to their funds.

The SEC claims Sentinel secretly transferred more than $460 million in client money to an in-house trading account and used the assets to obtain a $321 million credit line. The Wall Street Journal’s Law Blog posted the complaint.

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