Sentinel Management Group: The Ponzi Storm
Here is the Ponzi scheme that started the current worldwide credit crunch. Sentinel Management Group
On Monday, August 20, 2007, the Securities and Exchange Commission filed an emergency action against Sentinel Management Group, Inc. (Sentinel), an investment adviser located in Northbrook, Illinois, seeking to halt Sentinel’s improper commingling, misappropriating and leveraging client securities without client consent in violation of Section 206 of the Investment Adviser Act of 1940.The Commission's complaint alleges that, for a period of at least several months up to and including the week of August 13, 2007, Sentinel’s advisory clients suffered undisclosed losses and risks of losses as a result of several unauthorized practices engaged in by Sentinel. These include:
Pledging securities owned by clients as collateral in order to obtain a line of credit as high as $500 million for Sentinel;
Placing at least $460 million of client securities properly belonging in segregated customer accounts in Sentinel’s house proprietary account;
Commingling client assets without the ability to verify ownership of particular securities by particular clients; and
Providing false client account statements that did not accurately reflect client portfolio holdings or the fact that securities had been encumbered by Sentinel.
Greg Newton, of the Naked Short fame, has a number of interesting observations about the Sentinel Ponzi scandal.
The fallout from last week’s collapse of Sentinel Management Group Inc has reached across the Atlantic to infect at least two well-known hedge fund managers: Capital Fund Management, of Paris, France, and Helsinki, Finland-based ER Capital Management.CFM, run by Jean-Pierre Aguilar, said yesterday that his $4 billion company could lose as much as 27 percent of the assets, or $407 million, of its Discus Master Fund, and 10 percent of the $2.2 billion assets of its Stratus Fund Ltd, which invests in a range of CFM strategies
Next Greg talks about some of the secured creditors in this scam.
Eric Bloom, the chief executive officer of the failed Sentinel Management Group Inc, was a member of the advisory board of Lake Shore Asset Management Ltd, the alleged $1 billion commodity trading advisor ostensibly headed by former Chicago Mercantile Exchange chairman Laurence M. Rosenberg.Sentinel’s Lake Shore connection was first reported Monday, when the name of two Lake Shore entities appeared on the list of Sentinel’s 20 largest creditors that accompanied its bankruptcy filing on Friday, Aug. 17. A more complete list of Sentinel creditors included 11 readily-identifiable Lake Shore entities, all with mailing addresses in that Caribbean crucible of transparency, the Turks and Caicos Islands.
Lakseshore Management, according to a complaint by the CFTChas a mail drop in our fair city of Toronto. Nice to be part of an international fraud.
More and more interesting. And what happened to those investors with Sentinel, the ones Sentinel cannot figure who has what in which account?
"A funny thing happened on the way to freezing the assets of Sentinel Management Group Inc. All but $15.6 million of the $312 million it received from last week’s secrecy-enshrouded deal with Citadel Investment Group LLC lit out on a wire, propelled by a US Bankruptcy Court judge to the vigorous applause of, among others, the Commodity Futures Trading Commission and the National Futures Association.The very same NFA that, after learning of what the US Securities and Exchange Commission charitably characterized as Sentinel’s “false and misleading” Aug. 13 letter announcing its suspension of redemptions, wandered over to the firm’s offices and found that the company had
...failed to maintain adequate books and records, including records to demonstrate the location of all Seg III Account’s assets, and whether or not the account’s assets are in any way encumbered.
Or, as the SEC put it:
Sentinel has not kept accurate books and records...necessary to verify the ownership of the securities in its client and ‘house’ accounts and to prevent the firm from selling assets that it is not entitled to sell and distributing the sale proceed [to] persons not entitled to receive them. [Emphasis added].
Which does raise some interesting questions about who decided who got paid out of the $312 million, who actually got paid, and who decided the basis for the calculation of those payments, some addressed but none satisfactorily answered in the public record so far."
