Accused Black Diamond Fraudster Found At Psych. Hospital

Mar 29 2012 | 11:17am ET

One of the 11 people charged in the Black Diamond Capital Solutions fraud case has been arrested at a North Dakota psychiatric facility.

Michael Murphy is accused of running phony hedge funds as part of a $40 million Ponzi scheme; his indictment last month alleged that from October 2007 through April 2010, Murphy and his 10 alleged co-conspirators lied to investors to keep their scam afloat.

Murphy was arrested after failing to appear for a hearing in North Carolina federal court. He was arrested at a Fargo psychiatric hospital.

Prosecutors are currently battling to keep Murphy in custody. U.S. Magistrate Judge Karen Klein rejected a pretrial services officer's recommendation in approving Murphy's bid to be released into the custody of two friends; prosecutors appealed, calling for Murphy to be taken to North Carolina by the U.S. Marshals.

If convicted, Murphy faces up to 50 years in prison.

Six of the seven men indicted before Murphy pleaded guilty in the case and the seventh, Black Diamond founder Keith Simmons, was convicted by a jury.

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