SEC files fraud charge against cash manager

CHICAGO -- The Securities and Exchange Commission filed civil fraud charges yesterday against Sentinel Management Group Inc., the cash-management firm serving the US futures industry that filed for Chapter 11 bankruptcy protection late Friday.

In a complaint filed in US District Court in Chicago, the SEC alleged 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 Sentinel transferred at least $460 million in securities from client investment accounts to Sentinel's proprietary "house" account and used securities from client accounts as collateral to obtain a $321 million line of credit as well as additional leveraged financing.

The SEC also alleged Sentinel did not disclose its practices of "commingling," which involved transferring and misappropriating assets. Sentinel failed to inform clients that their investment portfolios were highly leveraged as a result of the financing activities, the SEC said.