The Securities and Exchange Commission has charged Memphis, Tenn.-based broker-dealer FTN Financial Securities Corp. for aiding financial advisor firm Sentinel Management Group Inc. in defrauding its clients of an estimated $1.5 million by failing to maintain accurate books and records of Sentinel's securities transaction liabilities in its 2006 financial statements.
The SEC alleges that the now-defunct and bankrupt Sentinel used those financial statements as part of its fraud against its advisory clients. The SEC claims that over year-end 2006 and into the first few days of 2007, Sentinel engaged in a five-day reverse repurchase transaction--called a "Repo Transaction''--with FTN.
The SEC ordered FTN to cease committing any future violations, and also said the firm must pay back $1,495,878 to clients as well as prejudgment interest of $377,759.
FTN agreed to consent to the SEC's order without admitting or denying its findings.
The SEC alleges that Sentinel used the proceeds from the Repo Transaction to pay down a portion of a bank loan balance temporarily before year-end 2006 in order to reduce the amount reported in its year-end financial statements.
However, the SEC claims that Sentinel did not include in its 2006 financial statements a liability associated with its obligation to repurchase the securities when the Repo Transaction was unwound.
--Jim McConville