CHICAGO - The US Securities and Exchange Commision today filed civil fraud charges against Sentinel Management Group, the cash management firm serving the US futures industry that filed for Chapter 11 bankruptcy protection late on Friday.
In a complaint filed in US District Court in Chicago, the SECalleged that Sentinel defrauded 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 alleges that Sentinel transferred at least US$460 million ($679.5 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 US$321 million line of credit as well as additional leveraged financing, the SEC alleged.
The SEC also alleged that Sentinel did not disclose 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.
The SEC is also seeking an emergency temporary restraining order telling Sentinel to immediately cease in engaging in illegal conduct.
