Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, August 21, 2007

SEC Charges Sentinel with Fraud

More on the SEC charges of fraud against Sentinel Management Group, a money manager with many futures clearing firms as clients, that broke last evening.  Last week Sentinel announced that it had to halt redemptions because of the liquidity crisis in the credit markets.  Instead, the SEC alleges, the firm has been suffering losses for several months because of "undisclosed use of leverage, commingling and misappropriation of clients' funds."  The SEC alleges that Sentinel commingled at least $460 million of clients' securities with its own accounts and used some of the clients' securities to secure a $321 million loan, on which Sentinel is now in default.  Yesterday the SEC and CFTC took opposing sides on Sentinel's request for judicial approval to distribute the proceeds of the sale of assets to Citadel Investment to Sentinel's clients.  The SEC said that there should be a freeze until the court determined whether some clients would receive more than their fair share of the assets.  The CFTC said the futures clearing firms needed the funds.  The court allowed Sentinel to distribute most of the assets.  WSJ, Sentinel May Have Used Liquidity Crunch as Cover.

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