Sentinel’s Bloom Trial Nears End With Divergent Recaps

Eric A. Bloom, chief executive officer of the failed investment firm Sentinel Management Group Inc., fraudulently misled clients about how their assets were being used, a prosecutor told a federal court jury.

“Sentinel was a fraud” led by Bloom, Assistant U.S. Attorney Patrick Otlewski said today in his closing argument in the federal trial in Chicago. He asked jurors for “the only verdict consistent with the evidence: a verdict of guilty on all counts.”

Bloom, 49, was indicted in 2012 charges he and another man cheated at least 70 investors of more than $500 million through Sentinel, a suburban Chicago firm that managed short-term investments for commodity pools, hedge funds, a pension fund and other customers.

Bloom’s lawyers said from the Feb. 26 start of the trial that he was innocent, rather than merely not guilty. Terence Campbell, Bloom’s lawyer, said in his closing argument today that it was adverse market forces, not malfeasance, that caused Sentinel to fail.

“The government in this case is trying to blame Eric Bloom for the effects of the global financial crisis,” Campbell said.

Frozen Accounts

The Sentinel-Bloom saga began publicly with the firm’s freezing of client accounts on Aug. 13, 2007. The criminal trial almost seven years later follows the economic recession that surged in 2008, the failure of Lehman Brothers Holdings Inc., the fraud prosecutions of Bernard L. Madoff and Allen Stanford, the collapse of MF Global Holdings Inc. and the indictment of Peregrine Financial Group Inc. founder Russell Wasendorf Sr.

Bloom faces 18 wire-fraud counts, each punishable by as long as 20 years’ imprisonment, and one count of investment-adviser fraud. U.S. District Judge Ronald A. Guzman is presiding over the trial.

Sentinel was sued by clients after announcing the account freeze and filed for bankruptcy days later. It was then sued by the U.S. Securities and Exchange Commission for allegedly lying to investors and misappropriating their assets.

Heading into August 2007, Sentinel had about $2 billion under management, bankruptcy trustee Frederick Grede said last month.

Loan Collateral

Otlewski told jurors today the Northbrook, Illinois-based firm had been using client assets as collateral for loans taken from the Bank of New York Mellon Corp., putting that money toward its heavily leveraged house trading account used for the benefit of firm insiders.

The prosecutor said that while Sentinel promised its clients their money would be invested in safe, liquid assets, it was engaging in increasingly risky trading strategies and lying to account holders about their rates of return until it couldn’t meet redemption requests in August 2007.

“Eric Bloom was Sentinel,” the prosecutor said, listing positions the defendant had held at the firm founded by his father, including head trader, chief compliance officer and chief financial officer.

Campbell told jurors the government needed to prove his client’s guilt beyond a reasonable doubt.

‘Reasonable Doubt’

“Reasonable doubt is not something you have to search for in this case,” Campbell said, repeatedly asking jurors to “peel back the layers of the onion” that is the government’s case.

He portrayed Bloom as a divorced father of two who delegated firm responsibilities to another man with whom he was indicted, head trader Charles K. Mosley, as he planned a wedding and then an African honeymoon in the first half of 2007.

It was Mosley, the attorney said, who engaged in self-dealing to the detriment of the firm and its clients. Mosley last year pleaded guilty to two counts of investment adviser fraud and agreed to cooperate with the prosecution.

He hasn’t been sentenced and didn’t testify at Bloom’s trial. His lawyer, Charles Nesbit, who was in court for Campbell’s summation, declined to comment on it afterward.

Guzman sent the jury home after Campbell completed his arguments. Prosecutors will be given an opportunity for rebuttal tomorrow before the jury is instructed on the law and begins its deliberations.

BNY Mellon has been pursuing a claim for more than $312 million in Sentinel’s bankruptcy case.

The case is U.S. v. Bloom, 12-cr-00409, U.S. District Court, Northern District of Illinois (Chicago).

Before it's here, it's on the Bloomberg Terminal.