(Adds allegations, case citation, byline)
By Jonathan Stempel
March 25 The former chief executive officer of
Sentinel Management Group Inc was found guilty on Tuesday of
defrauding customers out of more than $500 million before the
suburban Chicago firm collapsed in August 2007, federal
Jurors deliberated less than two hours in Chicago federal
court before finding Eric Bloom, 49, of Northbrook, Illinois,
guilty on 18 counts of wire fraud and one count of investment
adviser fraud, following a four-week trial, the office of U.S.
Attorney Zachary Fardon said.
Terence Campbell and Theodore Poulos, who represented Bloom,
did not immediately respond to requests for comment.
Each wire fraud count carries a maximum 20-year prison term
plus a fine. The government is also seeking a forfeiture of more
than $500 million. Bloom is free on bond pending sentencing.
The case had originally been brought by then-U.S. Attorney
Patrick Fitzgerald, who called it one of the largest fraud cases
ever brought in Chicago federal court.
Sentinel had managed short-term cash belonging to futures
commission merchants, commodity pools, hedge funds and others,
and according to prosecutors once oversaw more than $1 billion.
Bloom had been accused of defrauding more than 70 customers
in a scheme that ran from January 2003 to Aug. 17, 2007, when
his Northbrook-based firm filed for bankruptcy.
Prosecutors said Bloom falsely represented to customers the
risks of investing with Sentinel, including by concealing its
use of leverage and exposure to many illiquid securities.
Bloom and co-defendant Charles Mosley, Sentinel's head
trader, were also accused of pledging customer money as
collateral for a Bank of New York Mellon Corp credit
line, which grew to more than $415 million, that funded a
"house" trading portfolio to benefit them and Bloom's family.
Prosecutors said Bloom took in more than $100 million in the
scheme's final weeks despite knowing a default on the credit
line was possible, and on Aug. 13, 2007 misled customers by
blaming Sentinel's inability to honor redemptions on a
"liquidity crisis" and "investor fear and panic."
Assistant U.S. Attorney Clifford Histed told jurors during
closing arguments not that Sentinel was a victim of the credit
crisis, but rather that the crisis "exposed" its long-running
fraud, Fardon's office said,
Bank of New York Mellon was not charged with wrongdoing.
Mosley, 50, who lives in Vernon Hills, Illinois, pleaded
guilty in October to two counts of investment adviser fraud and
is awaiting sentencing, court records show.
The case is U.S. v. Bloom, U.S. District Court, Northern
District of Illinois, No. 12-cr-00409.
(Reporting by Jonathan Stempel in New York; Editing by Lisa
Shumaker, Bernard Orr)