By Joseph Checkler and Jacqueline Palank
Former Sentinel Management Group Inc. Chief Executive Eric A.
Bloom was convicted on Tuesday of defrauding customers out of more
than $500 million.
A federal jury at the U.S. district court in Chicago took less
than two hours to convict Mr. Bloom on 18 counts of wire fraud and
one count of investment-adviser fraud, according to a Justice
Department news release.
Mr. Bloom will be sentenced later: Each individual wire-fraud
count carries a maximum 20-year prison sentence and $250,000 fine
or more, depending on how much money victims lost. The
investment-adviser fraud count carries a five-year maximum prison
term and a $250,000 fine. A lawyer for Mr. Bloom didn't immediately
respond to a request for comment.
Mr. Bloom's lawyers argued during the trial that the executive
didn't set out to deceive customers of Sentinel before its 2007
collapse into bankruptcy, but was simply a victim of the burgeoning
credit crisis that was gripping the country.
The government said Mr. Bloom misappropriated customer funds by
pledging them as collateral to secure the firm's
multimillion-dollar loan from Bank of New York Mellon Corp. Unknown
to its customers, prosecutors said Sentinel then used the loan to
purchase millions of dollars in high-risk, illiquid securities for
a trading portfolio operated for the benefit of Mr. Bloom, certain
family members and Sentinel's head trader, Charles K. Mosley.
Not only did this strategy subject customers to higher risk than
what customers were told, prosecutors argued at the trial, but it
also allowed Sentinel to borrow more money than it otherwise could
have. When it could no longer honor significant redemption
requests, Sentinel collapsed into bankruptcy in August 2007.
Mr. Mosley, the former Sentinel head trader, was indicted on the
same charges as Mr. Bloom. Last fall, however, he agreed to plead
guilty to two counts of investment-adviser fraud and agreed to
cooperate with prosecutors.
Mr. Mosley hasn't yet been sentenced, although his reduced
charges carry a maximum sentence of 10 years in prison and $500,000
in fines.
Write to Joseph Checkler at joseph.checkler@wsj.com and
Jacqueline Palank at jacqueline.palank@wsj.com
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