Sentinel execs pay out in fraud lawsuit settlement

May 20 (Reuters) - Former top executives of cash management firm Sentinel Management Group Inc have agreed to pay $10.7 million to settle a $350 million lawsuit accusing them of defrauding clients, court paper show.

Sentinel's bankruptcy trustee, Frederick Grede, had accused President and Chief Executive Eric Bloom, founder Philip Bloom, and former senior vice president Charles Mosley in a lawsuit of committing "a long-term, massive fraud against Sentinel and its customers" in the U.S. futures industry.

Eric and Philip Bloom agreed to pay $10.7 million to settle the lawsuit, according to papers filed Friday by Grede with the U.S. bankruptcy court in Chicago.

The payment "represents substantially all the assets of the settling defendants, other than assets which are or are claimed to be exempt," the papers show. "The settling defendants will not challenge a bankruptcy petition by or against Sentinel Investment Group, debtor's parent company."

Sentinel, based in Northbrook, Illinois, filed for Chapter 11 bankruptcy protection in August 2007 after its board decided it was in "the best interests of the corporation, its creditors and other interested parties that a voluntary petition be filed ... in an effort to restructure the indebtedness of the corporation."

It had asked the court to appoint an independent trustee, as creditors had been pushing for an outsider to take control.

A few days after the filing, the U.S. Securities and Exchange Commission filed civil fraud charges against Sentinel, alleging it defrauded clients by improperly commingling, misappropriating and leveraging their securities without their knowledge.

John Squires, the bankruptcy judge overseeing the case, approved the appointment of Grede, a futures industry veteran, as trustee.

On May 1, 2008, the U.S. Commodity Futures Trading Commission said it is suing Sentinel Management for fraud and mishandling $562 million in commodity customer segregated funds. (Reporting by Neha Singh in Bangalore; Editing by Andrew Callus)