Judge blocks Sentinel sale of assets to Citadel

Sentinel Management Group Inc. is barred from selling hedge-fund firm Citadel Investment Group LLC assets belonging to two futures brokers, a federal judge ruled in a $15 .2 million lawsuit stemming from credit-market volatility.

Sentinel froze client withdrawals Tuesday, causing Farr Financial Inc. and Velocity Futures LP to sue the Northbrook-based firm. 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.

Farr and Velocity said the sale should be blocked 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 in Chicago federal court Friday.

"As of this moment," Guzman told lawyers for Citadel and Sentinel, all future transactions involving plaintiffs' funds are "prohibited. Period."

Robert Trizna, an attorney for Farr, said his client sent a letter to Sentinel stripping it of the right to make investment decisions for the company. Farr's lawsuit seeks damages of $15.2 million, an amount it said equaled the value of its funds on deposit Monday.

After the hearing, Trizna said he didn't know if Guzman's order, which the judge said isn't retroactive, was issued in time to block the sale of his clients' funds.

Guzman's order expires Aug. 31. No new hearing date has been set.

Bryan Locke, a spokesman for Chicago-based Citadel, declined to comment.

Farr said it serves about 5,000 retail customers with accounts totaling $34 million. According to its complaint, Farr is a "non-clearing" futures commissions merchant. While it can accept funds for the purpose of trading commodities-futures contracts, it must work through a firm such as Sentinel, which has at least one futures exchange membership and the ability to clear trades through it.

Sentinel lawyer Terry Moritz told Guzman his client faced the same cash-crunch as San Jose, California-based Farr and had entered talks with Citadel in part to address those concerns.

Velocity's lawyer, Matthew Crowl, said his client, with offices in Chicago and based in Houston, didn't object to the sale moving forward but wanted his client's assets exempted from the deal.