Petters-Linked Hedge Fund Managers Plead Guilty

Apr 25 2011 | 12:36pm ET

Two hedge fund managers indicted last week in the Thomas Petters Ponzi scheme case have pleaded guilty to lying to investors about the fraud.

David Harrold and Bruce Prevost, principals of Palm Beach Capital Management, entered their pleas on Thursday, just a day after their indictment. Each man faces up to 20 years in prison when they are sentenced.

According to prosecutors and the SEC, which sued the two men and their hedge fund in October, Palm Beach swapped old promissory notes it bought from Petters for new ones, hiding the exchanges from investors. Palm Beach's assets made up more than $1 billion of the $3.65 billion invested in the Petters Ponzi scheme.

The pleas from Harrold and Prevost come less than a week after another hedge fund executive, Michelle Palm of Arrowhead Capital Management, also pleaded guilty to misleading investors about the fund's relationship with Petters. All told, nine people have pleaded guilty in the case, including Gregory Bell and Harold Katz of hedge fund Lancelot Investment Management.

Petters himself was convicted by a jury and sentenced to 50 years in prison.

A third man indicted alongside Harrold and Prevost, former Petters associate Frank Vennes, has not entered his plea.

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