Petters Settlement Stopped In Wake Of Hedge Fund Fraud Accusations

Mar 28 2011 | 1:25am ET

A Securities and Exchange Commission lawsuit against a hedge fund has thrown a monkey wrench into a $14 million settlement stemming from the Thomas Petters Ponzi scheme.

A federal judge in Minneapolis put a stop to the settlement on Friday, the day it was supposed to be paid, after the SEC filed suit against Connecticut hedge fund manager Marlon Quan and his Acorn Capital Group. According to the regulator, Quan invested most of the $459 million he raised from investors with Petters and later sought to conceal Petters' $3.5 billion fraud.

The SEC, which timed the suit in part to block the $14 million payment, said it objects to the terms of the settlement.

"The money belongs to all of Mr. Quan's victims, not just some of them," the SEC's John Birkenheier said. "Investors in the U.S. will receive nothing."

Of the $14 million, half would go to the liquidator of the Acorn hedge funds, $5.9 million would go to Quan lender DZ Bank, and nearly $1 million would pay Quan's legal bills and other expenses.

In spite of the latter provision, a lawyer for Quan emphasized that the accused fraudster would receive no money personally.

"Mr. Quan has been fully cooperative with the SEC," Brian Michael said. "Nothing has been hidden."

U.S. District Judge Ann Montgomery gave the two sides until April 14 to figure out the mess.

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