U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20624 / June 18, 2008
SEC v. Sentinel Management Group, Inc., Eric A. Bloom, and Charles K. Mosley, Civil Action No. 1:07-CV-4684 (N.D. Ill.) (Kocoras, J.)
SEC Charges Two Former Sentinel Management Group Executives With Orchestrating Fraud
The Securities and Exchange Commission (Commission) announced today that on June 16, 2008, it charged two former Sentinel Management Group, Inc. (Sentinel) executives, Eric A. Bloom (Bloom) and Charles K. Mosley (Mosley), for their roles in devising and carrying out a fraud that has resulted in several hundred millions 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 (Client Portfolios) for various types of advisory clients, including Futures Commission Merchants, hedge funds, financial institutions, pension funds, and individuals. In an amended complaint filed today in federal court in Chicago, the Commission added Bloom and Mosley as defendants in the action it instituted against Sentinel on 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 Commission'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 Commission'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 (House Portfolio), which was owned by Sentinel insiders, including Bloom and Mosley. 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.
The Commission's amended complaint alleges that, as a result of Defendants' conduct, they violated Section 17(a) of the Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, or, in the alternative as to Bloom and Mosley, aiding and abetting of Sentinel's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The amended complaint also alleges that Sentinel violated Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2 thereunder and that Bloom and Mosley aided and abetted Sentinel's violations of these provisions. The amended complaint seeks a permanent injunction against the Defendants and also seeks disgorgement, prejudgment interest, and civil penalties against Bloom and Mosley.
For additional information, see Litigation Release LR-20249 (Aug. 21, 2007)