SEC picks up Sentinel ball

Gimme a P, gimme an O, gimme an N...

See also below: NFA drops Sentinel ball

Selected lowlights from yesterday’s US Securities and Exchange Commission complaint against Sentinel Management Group Inc, filed in federal court in Chicago:

Among its improper activities, Sentinel transferred at least $460 million...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 bank that extended the $321 million line of credit to Sentinel...intends to sell securities pledged as collateral for the loan...as soon as Aug. 22 2007.

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...To the contrary, Sentinel provided its clients with daily account statements that did not reflect the improper activities.

Sentinel’s explanation of its redemption suspension was false and misleading.

Undisclosed Misappropriation and Commingling of Client Assets

...Sentinel e-mailed customer account statements to its clients that were materially false and misleading...Customer statements...represented that the face value of the securities...was, in the aggregate, more than $670 million. Contrary to these representations, the Bank of New York custodial statement showed only approximately $93 million of securities...

...Sentinel placed at least $460 million of clients’ securities...in Sentinel’s house account...and, significantly, was available to be pledged as collateral. When SEC examiners asked Sentinel representatives which securities in the ‘house’ account were owned by clients...Sentinel representatives responded that it could not identify who owned those securities.

Undisclosed Leveraging of Client Assets

Sentinel pledged securities belonging to clients order to obtain a line of credit from the Bank of New York for its own benefit. The credit...reached as high as $500 million in Jun. 2007 and is now $321 million...clients had no way of knowing that their assets had been used by Sentinel to obtain financing for its own purposes.

...Sentinel had used $1.5 billion in securities owned by the clients to obtain financing three times the value of those securities....the financing was used to purchase additional securities. However the client statements prepared and distributed by Sentinel did not reflect any of this activity.

Oh, read the damn thing yourself

US Securities and Exchange Commission
v. Sentinel Management Group Inc
US District Court for the Northern District of Ill.
Aug. 20 2007