In early June, a U.S. bankruptcy judge approved two settlements that could return $10.7 million to Sentinel Management Group Inc.’s creditors. Sentinel’s bankruptcy trustee Fred Grede had initially sought a $350 million recovery, but says the sum represents “substantially all” of the recoverable funds from founder Philip M. Bloom and CEO Eric Bloom. The settlements release Philip, his wife Sybille and son Eric Bloom and their trusts against any pending or future lawsuits from the creditors.
“My role was to recover the funds, as much as I possibly can, on behalf of the creditors and I am confident we have done that here,” Grede says. “We think there are significantly more sources of recovery,” including the Bank of New York Mellon (BONY) and Sentinel’s accountants. The settlements stipulate that the Blooms will provide sworn financial statements and if undisclosed funds are identified, the settlement agreement would be invalidated.
BONY acted as custodian of securities on behalf of Sentinel and its customers, clearing agent for Sentinel’s securities transactions, and lender to Sentinel. Grede asserts that BONY commingled customer assets and facilitated Sentinel’s misuse of customer assets, allowing BONY to apply the proceeds from customer securities transactions to pay down a portion of Sentinel’s debt to BONY. And, Grede says, BONY aided and abetted breaches of fiduciary duty committed by Sentinel insiders, who misused customer securities for their own benefit and caused Sentinel to lose hundreds of millions of dollars. Further, he says that BONY knowingly colluded and facilitated the misconduct. BONY has filed suit against Grede, as Sentinel’s trustee, in an effort to recover $312 million
The SEC suit, filed last August, says Sentinel transferred at least $460 million in securities from client investment accounts to the firm’s proprietary house account and used those securities as collateral to get a $321 million line of credit from a bank and defrauded customers by improperly commingling, misappropriating and leveraging their securities without their knowledge and in violation of the Investment Advisers Act of 1940.
The CFTC’s suit, filed in April, charges Sentinel, Eric Bloom and former SVP Charles K. Mosley with fraud and segregation violations in their handling of $562 million of customer segregated funds.
