Sentinel Management Group once boasted that in nearly three decades of business, it had “never lost a dime” of its clients’ cash.
But when the investment firm collapsed in August 2007, it cost its customers more than $500 million.
And on Wednesday, as one of the biggest financial fraud trials in Chicago history began, federal prosecutors pointed the finger of blame at Sentinel’s CEO Eric Bloom, who they said “cheated and defrauded” his clients for years.
Wearing wire-rim spectacles, a somber business suit and a blue tie, the balding Bloom, 49, of Northbrook, looked the picture of conservative financial rectitude as what’s expected to be a monthlong trial began.
Assistant U.S. Attorney Cliff Histed, though, painted the New Trier high school graduate as a serial con man.
“He lied to them to get their money, and he lied to them to keep it, and he lied to them when he knew he couldn’t pay it back,” Histed said.
Sentinel promised clients that their money would be invested in low-risk government bonds.
But it secretly used customers’ cash as collateral to obtain loans, which it in turn used to purchase hundreds of millions of dollars worth of high-risk securities, Histed told jurors during his opening statement.
When it became clear in 2007 that the heavily leveraged bets were going south, Bloom helped his father, Sentinel’s founder Philip Bloom, hastily take $11 million out of Sentinel’s “house account,” but didn’t tell other investors how badly they were exposed, Histed added.
“The defendant used his customers’ money as though it was his,” the prosecutor added.
But defense attorney Ted Poulos insisted Bloom had always acted in “good faith,” had been open about Sentinel’s methods, and was a victim, not one of the causes of, the international 2007 financial collapse.
“Sentinel’s use of leverage was no secret,” he said, ridiculing prosecutors’ suggestion that many of those who suffered when Sentinel collapsed were farmers who were hedging against a decline in grain prices, not investors willing to take risks for an outsize profit.
“They weren’t ma and pa investors,” Poulos said. “They were large sophisticated companies with chief financial officers and lawyers, and a few high net worth individuals, you know — the 1 percent.”
Poulos instead placed the blame on Sentinel’s chief trader, Charles Mosley, who last year agreed to testify against Bloom under a plea deal with prosecutors.