Sentinel Failure - Hedge Funds Lose Cash?

It was a simple, plain-vanilla cash management business.

How can you screw that up?

That is what the SEC and several hedge funds are asking about Sentinel Management Group.

Sentinel found a cozy niche for itself. It managed cash for futures brokers and hedge funds.

Their promise was that it would be a safe place for hedge funds to park their cash between opportunities. The money would be safe, always immediately available, and would earn more than a money market.

Now, Sentinel has filed for bankruptcy and almost half a billion dollars are missing.

What happened?

It looks like a case of old-fashioned greed.

Fear and greed are the perils you face when dealing with financial markets.

In this case, it looks like Sentinel allegedly decided to use client money (without authorization) as collateral for a loan, so that they could use leverage in the credit markets.

Needless to say, when the credit markets had their recent problems, the bank called in its loan, and Sentinel sent out a letter to its clients saying they could no longer withdraw their funds.

This shocked the hedge funds and started what may prove to be a "big messy bankruptcy".