CHICAGO (CN) - The CEO and head trader of the bankrupt Sentinel Management Group defrauded clients of more than $500 million before the firm collapsed in 2007, prosecutors say.
Sentinel was a cash-management firm located in Northbrook, Ill., a suburb of Chicago. It managed the short-term investments of hedge funds, pension funds and high-net-worth individuals.
But the Justice Department said Friday that Eric Bloom, 47, and Charles Mosley, 48, used their clients' money "as collateral for a loan that Sentinel obtained from Bank of New York Mellon Corp (BoNY) that was in part used to purchase millions of dollars worth of high-risk, illiquid securities not for customers, but 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."
"Defendants Bloom and Mosley misappropriated securities belonging to customer portfolios by using them as collateral for a loan that Sentinel obtained from BoNY to purchase millions of dollars worth of high-risk, illiquid CDOs from Firm 1 and Firm 2 for the benefit of Sentinel's House Portfolio without disclosing to Sentinel's customers that securities in their portfolio were being used in this manner," the indictment states. "While doing so, Mosley received substantial personal benefits from Firm 1 and Firm 2 in the form of gifts, vacations, expensive tickets to sporting events, and parties."
"The use of their customers' securities as collateral allowed the defendants to borrow more money than Sentinel otherwise could, subjected the customer securities to potential legal claims by creditors, and allowed the defendants to employ leverage to the extent that Sentinel itself, and all of the customer portfolios, were at increased risk of adverse market movements and insolvency."
Bloom and Mosley each face 18 courts of wire fraud, one count of securities fraud and one count of making false statements to an employee pension plan. Each count of wire fraud carries a maximum penalty of 20 years in prison.
The indictment also seeks the forfeiture of more than $500 million.
The government is being represented by Assistant U.S. Attorneys Clifford Histed and Patrick Otlewski.