Sentinel Management Group, Inc. managed around $1.4 billion in funds for financial institutions and individuals. On August 17, 2007 Sentinel crumbed and filed for Chapter 11 bankruptcy protection in Chicago, Illinois. The firm is facing lawsuits from not only their clients but also the U.S. Securities Exchange Commission. Former top executives, Philip Bloom and his son, Eric Bloom, are working on settling a $350-million fraud lawsuit filed by the firm's bankruptcy trustee, Frederick Grede. Grede alleges in his October 11th lawsuit (Case No. 07-00981) that the executives committed, "a long-term, massive fraud against Sentinel and its customers." The lawsuit also names Charles Mosley, the firm's head trader, investment vehicles, and family trusts as defendants. The Blooms have confirmed that the parties have agreed on the settlement amount and payment terms and are working on the third draft of the settlement agreement.

On February 28, 2008 The Bank of New York filed an adversary proceeding against Grede (Case No. 08-00127) requesting a declaratory judgment for a valid, first-priority lien for over $312-Million against the Sentinel's assets in their bank. Grede filed a Motion to Dismiss in lieu of an answer on March 14 which is scheduled to be heard April 22, 2008.

Before Grede filed his Motion to Dismiss, however, he filed a separate adversary proceeding against The Bank of New York (Case No. 08-00127) on March 3, 2008. The fifty-nine paged Complaint alleges the bank's "misconduct played a pivotal role" in Sentinel's collapse in four ways. Specifically, the bank, "established a fundamentally flawed account structure for Sentinel's accounts in violation of its obligations under federal law and its duties to Sentinel; aided and abetted breaches of fiduciary duty committed by certain Sentinel insiders; knowingly accepted fraudulent and preferential transfers as part of the Sentinel insiders' scheme; and engaged in inequitable conduct." The bank's answer is due May 2, 2008.

The latest lawsuit (Case No. 08-00167) was filed on March 20th by Grede against McGladrey & Pullen, LLP ("M&P"), a national accounting and auditing firm who served as the independent auditor for Sentinel, alleging Negligence/Malpractice and Aiding and Abetting. The lawsuit alleges, in part, "[t]he material misstatements and omission in Sentinel's financial statements and deficiencies in M&P's audit procedures directly related to the financial circumstances and activity that led to Sentinel's demise". The lawsuit also named the partner at M&P that served as the engagement partner for Sentinel's 2006 audit, Victor G. Johnson. The defendants' answers are due April 21st.

You can review the article at: http://www.chicagobusiness.com/cgi-bin/news.pl?id=28781. The information stated above not mentioned in the article were collected by reviewing the above-referenced adversary cases of action and the underlying Bankruptcy Petition.

Chandra