Aug. 17 (Bloomberg) -- Sentinel Management Group Inc., a cash-management firm which froze client withdrawals three days ago, filed for bankruptcy after a judge sought to block it from selling assets to hedge fund company Citadel Investment Group LLC.
Sentinel, a Northbrook, Illinois-based firm that oversees $1.6 billion, stopped the withdrawals Aug. 14, causing brokers Farr Financial Inc. and Velocity Futures LP to sue.
Farr claimed the freeze blocked access to client funds. Velocity, joining the suit today, sought to keep its own clients' assets from being sold to Citadel because the assets are being sold at a 15 percent discount. The assets may have already been sold, lawyers for both sides told U.S. District Judge Ronald Guzman today in Chicago federal court.
``Sentinel's representations to the court were that the deal was done, with perhaps only $10 million to $15 million that hadn't been transferred,'' Matthew Crowl, a lawyer representing Velocity, said in an interview. ``You'd think that they'd be in great shape if they had this huge influx of cash.''
The Chapter 11 bankruptcy filing, which Sentinel said will allow it to restructure its debt, lists both assets and liabilities in excess of $100 million.
Sentinel froze withdrawals after saying turmoil in the credit markets made it impossible to trade without incurring losses. The threats of legal action from the firm's clients may foreshadow a flurry of lawsuits across the industry, as asset managers battered by market declines are forced to unload holdings at fire-sale prices.
Terry Moritz, a lawyer representing Sentinel, didn't immediately return a call or an e-mail seeking comment after business hours.
To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@blooomberg.net .
