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

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


Hedge Funds Swarm Into Palm Beach

Oct 27 2016 | 2:32pm ET

As the first flakes of snow fall on New York's northern suburbs, Dan Weil of South...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...