The Securities and Exchange Commission continued its volley on Sentinel Management Group, as the firm awaits a bankruptcy trustee to be named Aug. 23. In filing a Temporary Restraining order on Sentinel, Lou Gracia, assistant regional director for the SEC notes in his declaration that the SEC went into the Sentinel offices Aug. 15 — a day after Sentinel's halt on redemptions was reported in the press — and met with Sentinel President Eric Bloom, CFO Theresa Arana and the chief compliance office J. Matthew Keel. Although Sentinel told clients that the reason for the the redemption freeze was the market volatility, Gracia notes "This explanation is false and misleading. As described below, the clients' exposure to loss was exacerbated by the undisclosed use of leverage and apparent commingling and misappropriation of clients' securities. At the time the August 13 letter was sent to clients, the securities reported on account statements provided to clients bore no relation to the actual securities held for clients as reflected in their custodial account records."Download file
In addition to Gracia's declaration, here is the full memorandum on the TRO . Download file
Although word is that some monies are being distributed to clients in the Seg 1 account (that includes futures commission merchants with domestic clients), the Seg 3 accounts, that include hedge funds and endowments, and is a virtual who's who the the business, will not fare as well. Clients included firms such as Peregrine Financial Group, Kenmar, Alaron, Penson, 2100 Capital, Ravinia Investments, Lake Shore, Henry Shatkin, Lee Stern, LBS Ltd., Kottke...some who had significant monies held at Sentinel. One firm, Discus Master Ltd. noted it had received a statement reflecting $360 million interest in securities held by the client in the Seg 3 fund, but a Discus representative told Gracia that Sentinel refused to transfer the securities to Discus. Download file
The total of all customer statements in Seg. 3 showed $674 million, according to Sentinel documents, but the Bank of New York, the custodian bank, showed only $94 million held by all Seg. 3 clients.
On Aug. 16, Sentinel fired its sole portfolio manager and head trader, Charles Mosley, stating in the termination letter he had engaged in misconduct, according to the Gracia declaration. On its website, Sentinel had described Mosley as senior vice president and portfolio manager who handled the investment decisions and client relationships. He joined the firm in 2002, prior to which he was a trader with Fidelity where he he assisted in the management of fixed income market portfolios. He also had been a senior trader at the Federal Reserve Bank of New York and held an MBA from the University of Rochester's William E. Simon School of Business, according to the Sentinel discription.