Petters Ponzi Scheme Suit Against Hedge Fund Goes To Jury

Feb 11 2014 | 10:08am ET

The Securities and Exchange Commission's lawsuit against a Thomas Petters-linked hedge fund and its manager is in the hands of a Minneapolis federal jury.

The panel began deliberations yesterday to determine whether Marlon Quan and his Acorn Capital Group and Stewardship Investment Advisors are liable for their alleged role in Petters' $3.5 billion Ponzi scheme, which collapsed more than five years ago. The case against Quan and his firm is the first civil matter to go before a jury; to date, 13 people have pleaded guilty or been convicted in the case—the latter group including Petters himself and James Fry, the founder of hedge fund Arrowhawk Capital Management.

The SEC alleges that Quan raised more than $578 million for Petters and helped him cover up the fraud by engaging in so-called "round-trip" transactions, in which Petters wired money to the firms, which returned the cash immediately.

"Marlon Quan lied to investors to make money," SEC lawyer Charles Kerstetter told the jury in his closing argument. "He decided that his relationship with Tom Petters was more important than his investors."

Quan's lawyer, Christopher Casamassima, argued that his clients were "played for fools" by Petters, who is actually responsible for the fraud. And he blasted the SEC, saying it "failed miserably" by not uncovering the decades-long fraud until a Petters employee blew the whistle.

"No one in the government had any idea that Tom Petters was running one of the largest Ponzi schemes until Deanna Coleman walked into the doors of this building," two weeks after Quan himself had sued Petters.

Quan has not been charged criminally in the case.

Separately, Petters had his latest bid to get out from under his 50-year prison sentence rejected. Petters claims that his former lawyer never told him about a 30-year plea offer from prosecutors—and has asked U.S. District Judge Richard Kyle twice to let him plead guilty under those terms, four years after he was found guilty by a jury.

Kyle would have none of it in December, when he called the bid "one final con." And he had no more sympathy for its yesterday, when he again rejected the request. This time, Petters asked for the sun, moon and stars, seeking the sentence reduction, freedom on bail while it was considered, and Kyle's recusing himself from the case. Petters said he wanted a new judge because Kyle's son works for a law firm that represented Petters.

"All of the arguments fail on the merits," Kyle ruled.


In Depth

Royalties: The Alternative Assets of the Music Industry

Jul 8 2016 | 7:01pm ET

Recent market volatility has investors seeking greater insight into alternative...

Lifestyle

Moore Capital PM Fired After Raucous Hamptons Party

Jul 7 2016 | 10:47pm ET

A portfolio manager for Louis Bacon’s $15 billion hedge fund Moore Capital Management...

Guest Contributor

MPI: Like Stellar Returns? Better Understand the Risks First

Jul 22 2016 | 8:44pm ET

When the press reports extraordinarily strong relative or risk-adjusted returns...