Eric A. Bloom, who presided over Sentinel Management Group Inc.’s collapse seven years ago, has watched as the U.S. economy faltered then rebounded, awaiting judgment on whether he was a victim of the crisis, or one of its causes.
The former chief executive officer of the suburban Chicago investment firm may soon get his answer. He faces trial today in federal court for his role in what prosecutors claim was a $500 million fraud with more than 70 victims. While prosecutors say it was one of the largest frauds in the city’s history, Bloom contends the implosion was the fault of market forces beyond his control,
“He acted in good faith,” defense attorney Theodore Poulos said of his client in an e-mail on Feb. 21. “He certainly did not intend to defraud anyone.”
Sentinel’s downfall was among the first of a swarm as the worst financial crisis since the Great Depression took hold. The firm’s failure and the ensuing indictments of Bloom and Charles K. Mosley, who’d been Sentinel’s chief trader, spanned the bankruptcy of Lehman Brothers Holdings Inc., the prosecutions of Bernard Madoff and Allen Stanford, the failures of MF Global Holdings Inc. and the indictment of Peregrine Financial Group Inc. founder Russell Wasendorf Sr.
As a futures commission merchant, Northbrook, Illinois-based Sentinel managed short-term investments for commodity pools, hedge funds, a pension fund and other customers, prosecutors said in announcing the charges in 2012.
Heading into August 2007, it had about $2 billion under management, its liquidation trustee, Frederick Grede, said in an interview.
Citing credit market volatility, on Aug. 14 the firm froze client accounts preventing withdrawals. Over the next six days, Sentinel was sued by customers demanding access to their money, filed for bankruptcy and was accused by the U.S. Securities and Exchange Commission of co-mingling client funds with its own.
Bloom and Mosley were charged five years later.
“The case is one of the largest criminal financial fraud cases ever prosecuted in federal court in Chicago,” then-U.S. Attorney Patrick J. Fitzgerald said in a June 2012 statement announcing the 20-count indictment.
Prosecutors allege the men used client securities as collateral for a loan the firm obtained from Bank of New York Mellon Corp. and, in turn, used some of that money to buy high-risk securities for a trading portfolio maintained for Sentinel officers, Bloom family members and entities they controlled.
While both men initially pleaded not guilty, Mosley last year admitted to two counts of investment adviser fraud and agreed to cooperate with prosecutors.
Bloom, 48, faces 18 counts of wire fraud, one count of securities fraud and one count of making false statements to an employee pension plan. Each wire fraud count is punishable by as long as 20 years in prison.
Mosley, who faces as long as 10 years in prison, hasn’t been sentenced.
Randall Samborn, a spokesman for current U.S. Attorney Zachary Fardon in Chicago, declined to comment on the length of time between Sentinel’s collapse and the indictment of Bloom and Mosley. Jury selection in Bloom’s trial is scheduled to begin today before U.S. District Judge Ronald A. Guzman in Chicago.
Poulos said Bloom fully disclosed to customers Sentinel’s use of their portfolios as collateral for its Bank of New York loan.
Grede and the bank are still litigating over its entitlement to reclaim $337 million it says it’s owed.
“Sentinel’s collapse resulted from the global liquidity and credit crisis that seized the markets in the summer of 2007, not from any misconduct by Eric Bloom,” Poulos said.
The case is U.S. v. Bloom, 12-cr-00409, U.S. District Court, Northern District of Illinois, Eastern Division (Chicago).