Two Irish-listed investment funds sponsored by Davy Stockbrokers have a combined exposure of $655 million (€483.97 million) to Sentinel Management, a US group accused of defrauding clients after it sought bankruptcy protection last week. Arthur Beesley, Senior Business Correspondent, reports.
Discus Fund and Stratus Fund told the Irish Stock Exchange in separate statements yesterday that it was uncertain whether they would be able to recover any assets from Sentinel, a cash manager to the funds.
However, each said the "irregularities" at Sentinel had no direct impact on their operations.
Davy is listing sponsor of each fund on the Irish exchange. The broker had no comment on the matter. It is understood, however, that it has no client funds in either Discus or Stratus. Discus invests institutional money in futures, currencies and derivatives. The fund is operated by a British Virgin Islands partnership called Discus Master Ltd, one of Sentinel's biggest clients. The fund said its monetary exposure towards assets managed by Sentinel was $407 million on August 1st.
In a bankruptcy hearing last Monday in Illinois, Discus attorney Christian Kemnitz accused Sentinel of "disturbing" and "illegal" behaviour. "There's more going on here than simple mismanagement," he said.
Stratus is a fund of funds, which invests in several target funds. These include Discus Master Ltd. In its statement yesterday, Stratus said it total exposure to assets managed by Sentinel was $248 million.
Each fund said its directors and advisers were taking action to protect any assets held by the Bank of New York Mellon and formerly managed by Sentinel. Each has adopted a "conservative approach" by adjusting downward their risk level.
Such actions follow the filing of civil fraud actions against Sentinel on Monday by the US Securities & Exchange Commission (SEC). In advance of such claims, Sentinel had filed for Chapter 11 bankruptcy protection on Friday.
In an emergency motion yesterday before the US Bankruptcy Court for the Northern District of Illinois, the firm sought the appointment of an independent trustee. Such a move was necessary, it said, because actions taken by regulators were preventing executives from conducting normal business.
The SEC has accused Sentinel of defrauding clients by improperly misappropriating and leveraging their securities.
The regulator alleged that Sentinel transferred at least $460 million in securities from client investment accounts to Sentinel's proprietary "house" account.
Sentinel also used securities from client accounts as collateral to obtain a $321 million line of credit as well as additional leveraged financing, the SEC alleged. - (Additional reporting by Reuters)
