LAWFUEL – The Legal Newswire – Sentinel Management Group Inc., the cash-management firm that froze client withdrawals last week, was sued by the U.S. Securities and Exchange Commission for allegedly lying to investors and misappropriating their assets.
The firm fraudulently moved at least $460 million in securities from clients’ accounts into its own and misused customers’ holdings as collateral to obtain a $321 million line of credit “for its own benefit,” the SEC said in a lawsuit filed today at U.S. District Court in Chicago.
“Sentinel did not disclose to its clients its practices of commingling, transferring and misappropriating their assets, or inform them that their investment portfolios were highly leveraged,” the SEC said in its complaint. “To the contrary, Sentinel provided its clients with daily account statements that did not reflect the improper activities.”
The case shows how the sudden tightening of credit markets in recent weeks may flush out money managers who borrowed heavily against their clients’ securities. The SEC said Sentinel’s customers suffered undisclosed losses for months before the company sent them a letter Aug. 13, claiming it couldn’t return their money without selling their assets “at deep discounts” and incurring losses. The letter falsely blamed Sentinel’s predicament on the “liquidity crisis,” the SEC said.
Caleb Castillo-Olszta, an operations associate answering phone calls at Sentinel’s office in Northbrook, Illinois, said the company is not commenting on the regulator’s case.