Federal law enforcement officials on Friday indicted Eric Bloom and Charles Mosely, chief executive and head trader of bankrupt Sentinel Management Group, on charges of defrauding more than 70 customers of more than $500 million
Sentinel Management Group was a cash-management firm based in Northbrook, Illinois. Sentinel invested for clients such as managed-futures funds, high-net-worth individuals and hedge funds that want to be able to withdraw their cash quickly. Investments included short-term commercial paper, foreign currency, investment-grade bonds and Treasury notes. They oversaw approximately $1.6 billion.
The case, brought by outgoing U.S. Attorney Patrick Fitzgerald and one of the largest criminal financial fraud cases ever prosecuted in federal court in Chicago, stems from the August 2007 collapse of Sentinel, which was in suburban Northbrook and managed short-term cash investments for a variety of financial institutions and other customers, federal officials.
The indictment says that Bloom and Mosely allegedly misappropriated securities belonging to customers by using them as collateral for a loan that Sentinel obtained from Bank of New York Mellon Corp. That loan allegedly was used to purchase millions of dollars worth of high-risk, illiquid securities for a trading portfolio maintained for the benefit of Sentinel’s officers, including Mosley, Bloom, certain Bloom family members and corporations controlled by the Bloom family, the indictment said.
The indictment said Bloom, the president and CEO of Sentinel, was responsible for its day-to-day operations yet allegedly misled customers four days before Sentinel declared bankruptcy by blaming Sentinel’s financial problems on the “liquidity crisis” and “investor fear and panic.”
Officials claim he knew that the reasons for Sentinel’s financial problems were its purchase of high-risk, illiquid securities, excessive use of leverage and the resulting indebtedness on the BoNY credit line, which exceeded $415 million on Aug. 13, 2007. Sentinel declared bankruptcy on Aug. 17, 2007.
Bloom, 47, of Northbrook, and Mosley, 48, of Vernon Hills, will be arraigned on a date to be scheduled in U.S. District Court in Chicago. They were each charged with 18 counts of wire fraud, one count of securities fraud and one count of making false statements to an employee pension plan in a 20-count indictment that was returned by a federal grand jury yesterday. The indictment seeks forfeiture of more than $500 million.
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