Bankrupt firm’s CEO, head trader indicted in $500M fraud scheme

Bankrupt firm’s CEO, head trader indicted in $500M fraud scheme


STAFF REPORTS
Last Modified: Jun 1, 2012 02:05PM

In one of the largest criminal financial fraud cases ever prosecuted in Chicago, the CEO and head trader of a north suburban investment firm have been indicted for defrauding clients out of more than $500 million before the firm collapsed in 2007.

Eric A. Bloom and Charles K. Mosley misappropriated securities belonging to more than 70 customers by using them as collateral for a loan that Northbrook-based Sentinel Management Group Inc. used to purchase millions of dollars worth of high-risk, illiquid securities, according to a federal indictment announced Friday by the U.S. Attorney’s office.

Sentinel managed short-term cash investments of futures commission merchants, commodity pools, hedge funds, and at least one pension fund, but the high-rick securities were purchased not for customers, but for a portfolio maintained for company officers, including Mosley, Bloom, several of Bloom’s family members, and corporations controlled by the family, the indictment alleges.

Bloom, 47, of Northbrook, was president and CEO of Sentinel and responsible for day-to-day operations. He allegedly misled customers four days before Sentinel declared bankruptcy by blaming its financial problems on the “liquidity crisis” and “investor fear and panic,” according to the U.S. Attorney’s office. He knew however the problems were caused by the large purchase of high-risk securities, excessive use of leverage, and indebtedness on the Bank of New York Mellon Corp. credit line.

Mosley, 48, of Vernon Hills, allegedly purchased the securities from two brokerage firms and received gifts, vacations, expensive tickets to sporting events, and parties from those firms, the indictment alleges.

In July and August 2007, knowing Sentinel was approaching insolvency, and that defaulting on the line of credit was a possibility, they obtained millions of dollars in investments in Sentinel by concealing its true financial condition from customers, according to the indictment.

The credit line had a balance of more than $415 million on Aug. 13, 2007, and Sentinel declared bankruptcy on Aug. 17, 2007.

Both were charged with 18 counts of wire fraud, one count of securities fraud, and one count of making false statements to an employee pension plan, a release from the U.S. Attorney’s office said. The indictment seeks forfeiture of more than $500 million.

Each faces more than 20 years in prison and fines of $250,000.


http://www.suntimes.com/12909966-761/bankrupt-firms-ceo-head-trader-indicted-in-500m-fraud-scheme.html