Sentinel Management Files for Chapter 11 Bankruptcy

Quote from Stardust:

Penson GHCO (PNSN) Issues Statement Regarding Transaction by Sentinel Management Group
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have informed Sentinel and Citadel that we oppose the sale and have demanded that it be reversed. Should the sale not be reversed, based on what we currently know, we anticipate incurring a potential one-time after-tax loss of approximately $6.5 million on the Sentinel investment.

We and other customers of Sentinel have proposed alternative arrangements to Sentinel that we believe would be far more beneficial for all parties concerned. To date, such proposals have been ignored.

It is our intention to pursue all legal remedies against Sentinel, Citadel and related parties in order to obtain an improved resolution to this issue.
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Penson/GHCO is (at least) 5 times the size of Velocity, and (at least) 2 times the size of Velocity and Farr combined(based on 6/30/07 FCM Financials). 6.5M will not have an adverse affect on them. But the possibility does exist that it gets passed through to clients. The bigger question is, where does Penson/GHCO park the rest of it's customer funds? Same question goes out to ALL FCMs.

Osorico
 
I just got my money back from Penson/GHCO. It was supposedly parked in a segregated account at Harris Bank in Chicago. Is that just a front? By that I mean are they somehow getting the money from Harris Bank and lending it out elsewhere?
 
Quote from amiindew:

The way I see it is that we only have a real problem if Velocity files for bankruptcy or becomes insolvent, leaving us to recover our money on a pro-rated bases. The question is whether a 15% haircut on USD 18 million (apart from their USD 3.125 million in net capital) will cause Velocity into bankruptcy/insolvency. Its more like they will lose a year's profit but that doesn't make them bankrupt, does it? Any comments?
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A. Velocity didn't lose money. VF customers lost money. VF is not taking the haircut, its customers are.

B. Velocity did not lose its customer's money. Sentinel lost it. I question whether any VF customer has a cause of action against VF because of the actions of Sentinel.

C. IMO Velocity has major problems regardless of how this turns out. Who knows how long it will take for VF to get access to whatever funds remain. Will their customers be able to trade in the meantime? I doubt it. How would VF settle any losses its customers incurred through trading if it can't access the money? Even if VF get its money relatively quickly, how many customers are going to pull their funds regardless.
 
Because they are small fish, most likely Velocity and/or Farr will be sold to a larger FCM, very quickly, in order to make customers whole and avoid a bigger ripple effect.
 
Quote from wareco:

A. Velocity didn't lose money. VF customers lost money. VF is not taking the haircut, its customers are.

B. Velocity did not lose its customer's money. Sentinel lost it. I question whether any VF customer has a cause of action against VF because of the actions of Sentinel.

C. IMO Velocity has major problems regardless of how this turns out. Who knows how long it will take for VF to get access to whatever funds remain. Will their customers be able to trade in the meantime? I doubt it. How would VF settle any losses its customers incurred through trading if it can't access the money? Even if VF get its money relatively quickly, how many customers are going to pull their funds regardless.
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Suppose your points A and B are correct then why does this not apply to Penson worldwide, apparently they (not their customers) take the loss?:

"Penson Worldwide, which went public in May 2006, said it would suffer an after-tax loss of $6.5 million if Sentinel's sale of certain assets isn't reversed."
 
Quote from john12:

because penson worldwide is one of the biggest clearers of stock trades in the country it will eat the futures loses
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I think it is a matter of principle not the firm size, either losses are passed on to customers or not, whatever is legal and customary for the industry
 
Quote from wareco:

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B. Velocity did not lose its customer's money. Sentinel lost it. I question whether any VF customer has a cause of action against VF because of the actions of Sentinel.
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IMO, customers would have recourse only if fraud can be proven. AKAIK, Velocity has done nothing wrong. There are no CFTC/NFA regulations on where or in what instruments customer funds are parked. Velocity customer funds are/were segregated according to the rules. This leaves the burden of proving Sentinel accepted deposits with intent of fraud. Im sure Sentinels disclosure indicated no guarantees. They were a legitimate and registered/accredited operation.

If Velocity were bigger, Exchanges and/or Uncle Ben might cook up some rice. Woefully, I don't think that's the case.

Osorico
 
Quote from amiindew:

Suppose your points A and B are correct then why does this not apply to Penson worldwide, apparently they (not their customers) take the loss?:

"Penson Worldwide, which went public in May 2006, said it would suffer an after-tax loss of $6.5 million if Sentinel's sale of certain assets isn't reversed."
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Because we don't know the funds Penson deposited with Sentinel were segregated customer funds or FCM capital.

In the case of Velocity, the amount on deposit with Sentinel is a big tell in relation to its FCM financials. Same with Farr.

Osorico
 
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