Interesting Development for Sentinel Investors

[Mike Ellis]

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Bloomberg.com: Worldwide

Sentinel Management Group Halts Client Redemptions (Update5)
By Jenny Strasburg and Matthew Leising

Aug. 14 (Bloomberg) -- Sentinel Management Group Inc., the Illinois-based cash-management firm that oversees $1.6 billion, froze client withdrawals after saying that credit-market turmoil made it impossible to trade without incurring losses.

Sentinel, based in the Chicago suburb of Northbrook, said it contacted the Commodity Futures Trading Commission for approval to halt redemptions ``until we can honor them in an orderly fashion,'' according to an Aug. 13 client letter posted on TheStreet.com Web site. Regulators said the firm never made such a request.

``They're not honoring withdrawal requests, and the plan is over time to get out of positions,'' Jeff Barclay, a lawyer with Chicago-based Schuyler, Roche & Zwirner who represents Sentinel clients, said in an interview today. ``Their intent is to return money to clients, which is an admirable position, but it's a breach of contract and bad for a client that needs the money tomorrow for a margin call,'' Barclay said after speaking with members of the firm's legal staff today.

The collapse of the subprime-mortgage market has pushed down prices on fixed-income securities including corporate bonds and loans. The credit crunch forced hedge funds managed by Bear Stearns & Co. and Sowood Capital Management LP to liquidate last month, and it spilled over to equity markets last week, causing losses at computer-driven funds including those run by Goldman Sachs Group Inc.

`Investor Fear'

``Investor fear has overtaken reason and has induced a period in which most securities have simply ceased to trade,'' Sentinel said in its letter, which didn't specify which funds were affected. ``We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients.''

Eric Bloom, Sentinel's president and chief executive officer, didn't return phone calls seeking comment.

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