Corporate & Securities Law

SEC Adds Fraud Charges Against Executives At Sentinel Management Group

By James Eccleston

The Securities and Exchange Commission has announced that is has charged two former Sentinel Management Group executives, Eric Bloom and Charles Mosley, for their roles in devising and carrying out a fraud that has resulted in several hundred million dollars in losses to Sentinel's clients. 

Prior to its August 2007 bankruptcy, Sentinel was a registered investment adviser that primarily managed short-term cash investment portfolios for various types of advisory clients, including Futures Commission Merchants, hedge funds, financial institutions, pension funds, and individuals. 

In an amended complaint filed in federal court in Chicago, the SEC added Bloom and Mosley as defendants in the action it instituted against Sentinel August 20, 2007.  Bloom was the President and Chief Executive Officer of Sentinel from approximately October 1988 until August 2007.  He controlled the day-to-day operations at Sentinel.  Mosley was Senior Vice President, head trader and portfolio manager of Sentinel from approximately October 2002 until August 2007.  He was responsible for Sentinel's investing and trading activities.  The SEC's amended complaint also added new causes of action against Sentinel, which is now under the control of a bankruptcy trustee, in connection with Sentinel's pre-bankruptcy conduct.

The Commission's amended complaint alleges that from approximately 2003 through August 2007, Sentinel, through the actions of Bloom and Mosley, exposed its clients to substantial risks by engaging in an undisclosed investment strategy that relied extensively on leverage and repurchase transactions. 

Additionally, the SEC's amended complaint alleges that Sentinel, Bloom, and Mosley misused client portfolio assets to finance risky leveraged trading for the benefit of Sentinel's house portfolio which was owned by Sentinel insiders, including Mosley and Bloom.  The amended complaint also alleges that Mosley, with the knowledge and approval of Bloom, caused Sentinel to record huge returns -- annualized gains of 100% or more -- for its leveraged trading in the house portfolio, partly through misuse of client portfolio assets. 

The Commission's amended complaint also alleges that as part of their fraud, Bloom and Mosley improperly used client portfolio assets to collateralize a bank line of credit to Sentinel, thus subjecting clients to the risk that the lender would assert a security interest in the assets and sell them if Sentinel could not meet its loan obligations.

SNSFE continues to investigate this matter.  Those with information should feel free to contact lawyers at SNSFE.

Full post as published by FinancialCounsel on June 24, 2008 (boomark / email).