Eric Bloom was still in his 20s when he took over his father’s Sentinel Management Group Inc., a well-connected Northbrook money management firm known for always paying dividends on safe, reliable investments.
But prosecutors say Bloom secretly began exposing his well-heeled customers to an increasingly risky mix of leveraged deals, leading to the company’s spectacular collapse in 2007 and the loss of more than half a billion dollars to about 70 investor groups.
The downfall of Sentinel has been described as one of the largest financial fraud cases ever prosecuted in Chicago's federal court. But as Bloom’s trial got underway Wednesday at the Dirksen U.S. Courthouse, jurors heard two very different portraits of the 49-year-old New Trier High School grad who spent nearly his entire career in the family business.
“He lied to his clients,” Assistant U.S. Attorney Cliff Histed said in his opening statement, pointing to Bloom as he spoke. “He lied to them to get their money, and he lied to them to keep their money once he got it...And he lied to them when he knew he couldn’t pay it back.”
But Bloom’s attorney, Theodore Poulos, told jurors that Bloom was making decisions in a complex financial market without the “benefit of hindsight” like prosecutors. He said the fact that Sentinel was using clients’ funds to leverage other loans was properly disclosed in documents and included in contract language sent to investors by the firm.
“Eric Bloom acted in good faith. He didn’t lie to a single investor,” Poulos said.
Poulos said the alleged victims of Sentinel’s collapse were not “ma and pa” investors risking their retirement savings but wealthy individuals and huge hedge funds that knew what they were getting into.
“They weren’t you, they weren’t your neighbors,” Poulos told jurors. “...These are smart, highly educated, highly sophisticated professionals.”
The company’s sudden fall into bankruptcy rocked markets just as the global mortgage crisis was strengthening its grip on lenders. Prosecutors alleged that when the markets seized up and it became clear that Sentinel might default on more than $400 million it had borrowed on a Bank of New York credit line, Bloom used misleading account statements to keep clients in the dark about the deteriorating situation.
Histed said that as the scheme finally caved in August 2007, Bloom sent a letter to investors that essentially said, “Sorry folks, I can’t give you your money back.”
Sentinel’s head trader, Charles Mosely, pleaded guilty to fraud last October and agreed to testify for prosecutors at Bloom’s trial. Prosecutors are also expected to rely on conversations recorded on Sentinel's phone lines as a routine part of its trading business.
In one call, Mosley allegedly updated his boss on the deep losses they were taking on trades.
“Ask (my assistant) to look in my couch for spare change,” Bloom was quoted as telling Mosley.