The Securities and Exchange Commission (SEC) filed a lawsuit against Sentinel Management Group in U.S. District Court of Northern District of Illinois on Aug. 20, stating that the firm, which claimed to have $1.2 billion in assets under management, "defrauded its clients by improperly commingling, misappropriating and leveraging their securities without their knowledge in violation of the Investment Advisers Act of 1940." Download file

The lawsuit alleges that Sentinel transferred at least $460 million in securities from client investment accounts to the firm's proprietary house account, and used those securities as collateral to get a $321 million line of credit from a bank. Although the bank was not mentioned, the Bank of New York was where Sentinel kept its segregated accounts. Although not named in the suit, Sentinel Chairman Philip M. Bloom and President Eric A. Bloom, the father-son team that ran the firm,have some explaining to do. Both have long ties in the industry and their firm's actions, at least alleged by the SEC lawsuit, appear now to have less to do with bad trading and more to do with possible fraud. More to come.