U.S. files fraud charges against Sentinel

By James B. Kelleher

CHICAGO (Reuters) - The U.S. Securities and Exchange Commission filed civil fraud charges on Monday against Sentinel Management Group Inc, the cash management firm serving the U.S. futures industry that filed for Chapter 11 bankruptcy protection late on Friday.

In a complaint filed in U.S. District Court in Chicago, the SEC accused Sentinel of defrauding clients by improperly commingling, misappropriating and leveraging their securities without their knowledge in violation of the Investment Advisers Act.

According to the complaint, the SEC alleged that Sentinel transferred at least $460 million in securities from client investment accounts to Sentinel's proprietary "house" account.

Sentinel also used securities from client accounts as collateral to obtain a $321 million line of credit as well as additional leveraged financing, the SEC alleged.

The SEC also accused Sentinel of not disclosing to its clients it practices of "commingling," which involved transferring and misappropriating their assets. Sentinel failed to inform them that their investment portfolios were highly leveraged as a result of the financing activities, the SEC said.

"To the contrary, Sentinel provided its clients with daily account statements that did not reflect the improper activities," the SEC said in the complaint.

Sentinel did not return a call seeking comment, nor did its attorney Ronald Barliant respond to an e-mail.

The SEC is also seeking an emergency temporary restraining order telling Sentinel to immediately cease in engaging in illegal conduct.