Hedge Fund Sued Over Petters Investments

Oct 15 2010 | 1:02pm ET

The Securities and Exchange Commission has accused a Florida hedge fund of serving as a feeder fund for convicted Ponzi schemer Thomas Petters’ $3.65 billion fraud.

Palm Beach Capital Management and its principals, Bruce Prevost and David Harrold, misled investors about their investments with Petters, the SEC alleged in a lawsuit filed yesterday in Minneapolis. Palm Beach bought more than 2,000 promissory notes from Petters, swapping them for new promissory notes when the old ones came due. The new notes were supposedly backed by different collateral, but the hedge fund hid the exchanges from investors, anyway, according to the SEC.

“Of the approximately $3.65 billion invested in the Petters Ponzi scheme at the time of its collapse, the Palm Beach funds accounted for more than $1 billion,” the complaint alleges.

Palm Beach is far from the first hedge fund to get caught in Petters’ legal web. The founder of Lancelot Investment Management was sentenced to six years in prison for his role in helping Petters cover up his fraud; another Lancelot executive is awaiting sentencing. Colorado hedge fund manager Neal Greenberg was sued last month by the SEC for misleading investors in his Agile Group about its losses in the Petters and Bernard Madoff Ponzi schemes. And Ritchie Capital Management has been sued by Barclays Bank for allegedly hiding more than $150 million in Petters investments.

Petters himself was convicted of fraud, conspiracy and money laundering in December. He was sentenced to 50 years in prison, but is appealing the guilty verdict.


In Depth

Malik: The Science of Deal Sourcing 201

Aug 27 2015 | 5:35pm ET

Deal sourcing is understandably a hot topic among private equity firms because it...

Lifestyle

Rolling Art Advisors Marketing Collectible Car Fund As Uncorrelated Alternative

Aug 27 2015 | 6:47pm ET

A new fund is trying to provide investors with greater access to an emerging asset...

Guest Contributor

FATCA for Hedge Funds: Eight Common Pitfalls

Sep 1 2015 | 10:56am ET

FATCA is now a way of life for those in the financial industry and most professionals...

 

Editor's Note