Eric Bloom, Sentinel Management Group Inc.’s former chief executive officer, was sentenced to 14 years in prison for his role in a $665 million investor fraud.
Bloom, 49, was convicted in March of misleading the cash management firm’s clients about how it was handling their assets, concealing that they’d been pledged to the Bank of York Mellon Corp. as collateral for a firm credit line worth hundreds of millions of dollars. Sentinel was using the credit to buy assets for an account maintained for insiders, including Bloom and members of his family.
In imposing the punishment on Friday, U.S. District Judge Ronald A. Guzman called the crime “a truly horrific fraud.” It was the largest such case ever prosecuted in the Chicago federal court, Randall Samborn, a spokesman for the U.S. Attorney’s Office, said in a statement.
Sentinel promised customers their investments would weather the most severe market conditions, Guzman said.
“Along come severe market conditions, and everything falls apart,” he said.
The Northbrook, Illinois-based firm, which managed short- term investments for hedge funds, futures commission merchants and other investors, failed in August 2007 when world credit markets tightened suddenly. Sentinel became unable to cope with client redemption demands and filed for bankruptcy. It once had as much as $2 billion in assets under management.
At the trial and at Friday’s court hearing, lawyers for Bloom blamed the global financial crisis for Sentinel’s collapse and ensuing losses. They maintained that any wrongdoing was that of the firm’s chief trader, Charles Mosley, a co-defendant in the case.
Mosley, who pleaded guilty to two counts of investment adviser fraud and agreed to cooperate with prosecutors, was sentenced to eight years in prison. He and Bloom are jointly responsible for paying more than $665 million in restitution.
Addressing the court before being sentenced, Bloom apologized to Sentinel clients and family members in the courtroom. He also pleaded with Guzman to see him as an honest but flawed man and not the schemer portrayed by prosecutors.
Bloom said that while he may have been negligent or incompetent, he wasn’t a thief.
“Sentinel turned out to be a tragedy, and I am very sorry for that,” he said.
Bloom’s wife, Elizabeth, pleaded for leniency on her husband’s behalf. They were on their honeymoon at the onset of the crisis, she said, adding that her husband never set out to hurt anybody.
Assistant U.S. Attorney Cliff Histed told the judge that Bloom lied to customers and turned Sentinel into “a house of cards.”
Guzman expressly rejected defense arguments that Sentinel investors’ losses couldn’t be solely attributed to Bloom as investors everywhere were hurt by the market collapse. The scale of that crisis “was not reasonably foreseeable,” attorney Terence Campbell argued.
Because the firm had leveraged its clients’ assets, Bloom couldn’t reasonably have expected anything short of “horrific losses” if the market turned, the judge said. The nature of its clients “almost guaranteed a chain reaction.”
Histed’s response was more pointed.
If it hadn’t been for Bloom’s deceptions, “he never would have had their money in the first place,” the prosecutor said.
The case is U.S. v. Bloom, 12-cr-00409, U.S. District Court, Northern District of Illinois (Chicago).