from Lemetropolecafe.com

Kudos to James Turk who was way ahead of the pack two days ago in a Chris Powell dispatch…
"Suddenly investors are learning about counterparty risk, GoldMoney founder James Turk writes in his latest commentary for that gold-brokerage service."
Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, speculates that the next phase of the panic over sub-prime mortgages may involve the discovery that they have infected ordinary money-market funds.
***
Voila…
10:55 Sentinel Management Group halts redemptions - CNBCCNBC reports that Sentinel of Illinois has asked the CFTC to permit the firm to halt redemptions for clients that have overnight accounts. CNBC says that it is unclear how big Sentinel is. * * * * *
1:24 Follow-up: Bloomberg reports that Sentinel Management managed $1.6B as of last monthCNBC reported earlier that Sentinel had asked CFTC permission to halt redemptions. Bloomberg reports that an assistant at Sentinel said that the CFTC had not yet approved the request. * * * * *
This is astounding…
From Barry Ritholz "The Big Picture"Money Markets Halting RedemptionsTuesday,
August 14, 2007 10:13 AM
via the always astute Doug Kass, we must point you to this simply unbelievable document . . . That's right, some Money Markets -- safe as cash, totally liquid -- are halting redemptions. Note: there is a big difference between Money Market Funds, and "enhanced" Money Market Mutual Funds -- namely, whether or not they are FDIC guaranteed to $100k.Once again, we see what the reach for yield has wrought . . .
August 13, 2007Dear Client:As you undoubtedly know, the credit markets, along with most other markets, have experienced a liquidity crisis in the past several weeks. Investor fear has overtaken reason and has induced a period in which most securities have simply ceased to trade. We have all read the stories about one hedge fund or another suffering losses related to subprime exposure and closing down or being rescued. This fear, while warranted in some cases, has spilled over into the rest of the credit market and liquidity has dried up all over the street. In addition, investment banks and securities firms are stuck with LBO deals they have already entered into but cannot find buyers for the bonds so must inventory them themselves.This liquidity crisis has caused bids to disappear from the market and makes it virtually impossible to properly price securities or to trade them. High grade securities are trading like junk bonds as panicked investors dump names like General Electric at Tyco-like prices.We have carefully monitored this situation for the past several weeks and have met regularly todiscuss the potential impact it may have on our clients. We had previously thought that the marketwould return to some semblance of order and that our clients would not join in the panic.Unfortunately, this has not been the case. We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients. We contacted the CFTC today and asked for their permission to halt redemptions until we can honor them in an orderly fashion.
Sentinel has always sought to protect your interests and since our inception in 1980, we have never experienced a situation quite like this one. We will continue to monitor the markets and we will raise cash as opportunities present themselves.We understand that this will obviously cause inconveniences on your part however, at present,we do not see an alternative and we don't believe it is in anyone's best interest if a run on Sentinel tookplace and we were in a forced liquidation mode.We value your trust in us these past 28 years and this has been a very difficult decision for usand we understand the implications of this decision both on you and on Sentinel. We feel, however,that this is the best way to assure you the best possible value on your investment.We will remain in contact with you and update you as things progress.
Sincerely,Sentinel Management Group, Inc.
CFTC says it can't halt Sentinel's redemptions WASHINGTON,
Aug 14 (Reuters) - The U.S. Commodity Futures Trading Commission has no authority to grant Sentinel Management Group's request to halt client redemptions, an agency official said on Tuesday. "The CFTC has no authority in this area," the CFTC official, who asked not to be identified, told Reuters. "This isn't something we do. "We have no role in whether or not the company does this and whether the client accepts it," the official said…
-END-
Why the CFTC I asked Jesse? Then I learned Sentinel was an FCM (Futures Commission Merchant) and not a money market fund, although are providing a similar service.
Jesse responded with…Here is the CFTC connection for Sentinel. I'm sure you've seen the CFTC response saying 'no jurisdiction.'But this is probably why they asked the CFTC and not the SEC. Sentinel 125 PortfolioInvestment Objective:The 125 Portfolio is intended to provide Sentinel's FCM clients with a short-term investment alternative that combines safety of principal, liquidity and competitive yields compliant with the CFTC's Rule 1.25. An investment in the 125 Portfolio provides an indirect, undivided pro-rata interest in the underlying securities.
Allowable Investments:
» Obligations of the U.S. Treasury and GNMA
» Short term commercial paper rated A1/P1
» Medium and long term debt rated AA or higher » Bank time deposits
» Repurchase agreements collateralized by the above Investment Strategy:
Sentinel's 125 Portfolio has been created and designed to adhere to the guidelines of the CFTC's Rule 1.25 governing allowable securities for the investment of customer (segregated) funds by FCMs. Sentinel structures this portfolio to include only those securities that meet the high rating standards of the rule. Sentinel uses the provision of the rule dealing with maximum average maturity, as a way to deliver yields that exceed those of competing money market funds whose maturity guidelines are subject to more constraining regulation. In order to accommodate the liquidity needs of FCM clients, this portfolio will, typically, hold forty to fifty percent of its assets in the form of overnight repurchase agreements (repos). Special market conditions may dictate higher or lower percentages as prudent departures from the norm.

Comment from my side
How determines the Fair Value?
Let's go back to the statement in Sentinels letter
"We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients."
To that please read the remark from Mish (http://globaleconomicanalysis.blogspot.com/)
"doesn't the market determine "fair value"? Apparently Sentinel thinks it knows what fair value is but the market doesn't. Recall that Bear Stearns thought the same thing. Bear Stearns locked out clients who wanted to redeem all the way back in January. Those investors would have gotten something back. Perhaps as much as 70 cents on the dollar. Bear Stearns locked those clients in and the Hedge Fund went to zero: totally worthless