By Nate Raymond
Oct 8 (Reuters) - A former executive at Sentinel Management Group Inc pleaded guilty on Tuesday to defrauding customers out of more than $500 million before the futures brokerage collapsed in 2007.
Charles Mosley, a former Sentinel senior vice president and head trader and who faced 20 criminal counts in the initial indictment, pleaded guilty to just two before a federal judge in Chicago under a new charging document prosecutors filed Friday.
Mosley and Sentinel's former chief executive officer, Eric Bloom, were indicted last year on charges they used customer securities as collateral for a bank loan to fund a "house" trading portfolio intended to benefit them and Bloom's family.
Under a plea deal, prosecutors have agreed to recommend a prison term of 10 years. Mosley, 49, has meanwhile agreed to cooperate with the investigation.
Charges remain pending against Bloom, who faces trial starting Feb. 24.
Mosley's guilty plea was confirmed by a spokesman for Acting U.S. Attorney Gary Shapiro in Chicago.
A lawyer for Mosley did not immediately respond to a request for comment, while a lawyer for Bloom had no immediate comment.
Before it collapsed, Northbrook, Illinois-based Sentinel mainly managed money for other futures brokerages who sought out the high-yield returns Sentinel offered.
The indictment of Bloom and Mosley became what prosecutors called one of the largest federal criminal financial fraud cases ever brought in Chicago.
More than 70 customers were affected by the alleged fraud, which ran from January 2003 to August 17, 2007.
The indictment charged that Bloom and Mosley used customer securities for a loan from Bank of New York Mellon Corp in order to buy high-risk, illiquid collateralized debt obligations (CDOs), for the benefit of Sentinel's "house" portfolio.
The indictment also charged that Bloom misled customers four days before Sentinel filed for bankruptcy by blaming its inability to honor client redemptions on a market "liquidity crisis" and "investor fear and panic."
The real problem, prosecutors said, was Sentinel's exposure to high-risk illiquid securities and a $415 million balance on the BNY Mellon credit line.
Separate cases by the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission brought prior to the indictment remain pending.
The cases are in the U.S. District Court, Northern District of Illinois. The criminal case is U.S. v. Bloom et al. The civil cases are SEC v. Sentinel Management Group Inc et al, No. 07-04684; and CFTC v. Sentinel Management Group Inc et al, No. 08-02410.