The US Securities & Exchange Commission has filed a civil suit against Sentinel Management Group alleging improper commingling of assets and using clients' securities to obtain more than $500 million in leverage financing. Chicago-based Sentinel, which invests for managed-futures funds, hedge funds and high net worth individuals, filed for Chapter 11 bankruptcy protection on 17 August, blaming the credit crunch in the credit markets. Four days earlier it had informed clients that it was halting all redemptions. But in a civil suit filed on US District Court for the Northern District of Illinois in Chicago, the SEC said: "Sentinel's explanation of its redemption suspension was false and misleading. Sentinel's advisory clients suffered undisclosed losses and risks of losses due to Sentinel's undisclosed use of leverage and commingling and misappropriation of clients' securities ... [and] the account statements Sentinel provided to clients listed hundreds of millions of dollars in securities that were not held by Sentinel at all, were held by Sentinel and treated as its own assets, or were pledged as collateral for loans extended to Sentinel." Sentinel, which manages about $1.2 billion in assets, transferred at least $460 million in securities from client investments accounts to its "house" account, and pledged securities belonging to clients as collateral for a line of credit from the Bank of New York, the SEC claimed. The credit facility was as high as $500 million in June, and it now stands at $321 million, according to the SEC. BoNY has declared Sentinel in default and intends to sell client securities that were pledged as collateral for the loan. "A representative of Sentinel told a member of the SEC's examination staff that since 2004 Sentinel had used $1.5 billion in securities owned by clients to obtain financing totaling three times the value of those securities," the SEC said in its complaint. "However, the client account statements prepared and distributed by Sentinel did not reflect any of this activity."