(Adds details throughout)
By Martin Howell
NEW YORK Aug 17 Sentinel Management Group
Inc., a cash management firm serving the U.S. futures industry
whose decision to freeze client accounts on Tuesday helped roil
global financial markets, filed for Chapter 11 bankruptcy
protection late on Friday.
The firm, which managed about $1.6 billion of assets, said
in the filing that its board decided it was in "the best
interests of the corporation, its creditors and other
interested parties that a voluntary petition be filed ... in an
effort to restructure the indebtedness of the corporation,"
according to a filing in the bankruptcy court for the Northern
District of Illinois.
Sentinel told clients in an Aug. 13 letter: "we are
concerned that we cannot meet any significant redemption
requests without selling securities at deep discounts to their
fair value and therefore causing unnecessary losses to our
The Northbrook, Illinois-based firm said then that "we
don't believe it is in anyone's best interest if a run on
Sentinel took place and we were in a forced liquidation mode."
That announcement had helped to drive U.S. stocks lower,
taking the Dow Jones industrial average .DJI to a four-month
low, as it added to concerns about failing entities due to
highly volatile markets and a credit squeeze.
News about Sentinel came on the heels of problems at funds
managed by Bear Stearns Cos. BSC.N, Goldman Sachs Group Inc.
(GS.N) and other companies in the United States and abroad.
The bankruptcy filing said Sentinel estimated assets and
liabilities both exceeded $100 million, but it wasn't more
specific. It said it estimated it had at least 200 creditors.
Late on Tuesday afternoon, a U.S. Commodity Futures Trading
Commission official, who requested anonymity, had said U.S.
futures exchanges were trying to get other futures companies to
step in and ease Sentinel's concerns about client redemptions.
But the bankruptcy filing came as clients began hitting
Sentinel with lawsuits, accusing the cash management firm of
selling investors' assets too cheaply and without approval, the
Chicago Tribune reported in its online site on Friday.
Penson GHCO, a unit of publicly traded Penson Worldwide
Inc. PNSN.O of Dallas, filed suit late Friday afternoon in
Cook County Circuit Court against both Sentinel and
Chicago-based hedge fund group Citadel Investment Group,
according to the report.
Separately on Friday afternoon, a U.S. district judge
blocked the sale of some of Sentinel's assets to Citadel,
granting a temporary restraining order that applied only to
Farr Financial Inc. and Velocity Futures, the Chicago Tribune
Earlier in the day, Penson GHCO said in a statement that
Sentinel informed it on Thursday of the sale of certain assets,
including Penson's assets, to Citadel. The sale occurred
without notice and without Penson's approval, and was in breach
of its contract with Sentinel, Penson said.
"Based on what we have heard of the proposed terms, we
believe that this sale occurred at discounts of up to 30
percent from market prices," Penson said.
Penson, which went public in July 2006, said it would
suffer an after-tax loss of $6.5 million if Sentinel's sale
"This hastily arranged sale of Sentinel's assets at unfair
prices represents a gross injustice to Penson and the other
customers of Sentinel," said Daniel P. Son, president of Penson
Sentinel and Citadel could not be immediately reached for
Sentinel said in its filing that it signed a letter on Aug.
15 engaging the law firm of Goldberg Kohn Bell Black Rosenbloom
and Moritz Ltd. to help with the bankruptcy petition.
In the filing, Sentinel lists its creditors holding the top
20 unsecured claims. They are: Discus Master Ltd.; Trading
LSIII; IFX Markets Inc. House Account; SMW Trading Company,
Inc. Hse; Jump Trading, LLC; JEM Commodity Relative Value Fund
LP Trading; Rotchford L. Barker Rev. Living Trust; BC Capital
Fund A, LLC; LakeShore Alt Financial Asset-Trading 2; 2100
Capital Multi-Strategy Master GlobeOp Financial Services; BC
Capital Fund B, LLC; Sentinel US Liquidity Fund, Ltd.; Dighton
UTG Fund SPC obo Aggressive Portfolio; Sentinel Bank & Trust
Ltd.; Leviathan Diversified Fund 3XL; Lake Shore AltFinancial
Fund IV Ltd.-Trading; Fortis Clearing Americas LLC US CFTC Reg
30.7; One York Property, LLC; Blueprint Partners LP; Stone
Capital Group, Inc.