Northbrook, IL – May 1, 2008 – The U.S. Commodity Futures Trading Commission (CFTC) has filed suit against Eric A. Bloom, president and CEO of Sentinel Management Group, Inc., and Charles K. Mosley, former senior vice-president, alleging fraud and segregation violations involving over $562 million in commodity customer funds. The complaint, filed in the United States District Court for the Northern District of Illinois, details a scheme to misappropriate customer assets.
According to the CFTC, Sentinel, registered as a Futures Commission Merchant (FCM) since 1980, did not engage in traditional futures trading. Instead, it offered short-term money management services, claiming to adhere to CFTC regulations regarding the segregation of customer funds. The agency alleges Sentinel improperly commingled customer assets with its own and those of others, and misused those funds to secure a loan from the Bank of New York.
The CFTC complaint alleges that Sentinel, along with Bloom and Mosley, improperly removed as much as $444 million in customer securities from segregation to use as collateral for the loan – a practice the company was not authorized to undertake. Furthermore, Sentinel allegedly falsely reported to the CFTC that it had no outstanding debts between September 2005 and July 2007.
As of August 13, 2007, Sentinel claimed to manage $1.2 billion in customer assets, including the $562 million in segregated funds. However, on August 17, 2007, the company filed for Chapter 11 bankruptcy protection. Commodity customer losses currently exceed $130 million.
The CFTC alleges that Mosley was primarily responsible for the securities trading that facilitated the misuse of funds, and therefore liable for aiding and abetting Sentinel’s violations. Bloom, as a controlling person with knowledge of the fraudulent activity, is also held liable for the company’s actions.
The CFTC is seeking permanent injunctions against all defendants, restitution for defrauded customers, monetary penalties, and other appropriate relief. The case highlights the CFTC’s commitment to enforcing customer protection regulations within the commodity futures market.
Source: CFTC.gov
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