• 13 Jul 2009 at 4:35 PM

Who’s Next To Be Nabbed In Petters Fraud?

A Petters fraud feeder fund, Palm Beach Capital Management with $1.6 billion of assets, is rushing to protect its asses before investors and regulators take a piece of the fund managers’ hide. On Thursday investors in Bruce Prevost and David Harrold’s Palm Beach Gardens-based hedge fund, received a letter to investors, which some recipients are now calling a delusional form of denial.

In an attempt to calm down an angry investor group who’ve been left in the dark about what’s going on in winding down the fund, Steven Thomas the hedge fund’s steering committee lawyer writes, “Although I have spoken to a number of you individually, I apologize for the lack of updates to the investor group.”

Meanwhile Dealbreaker has seen copies of SEC communication that say the fund has been been investigated twice by the Dallas and Miami offices as far back as 2007 and accounts confirmed by an ex-employee of the firm. On Friday, another hedge fund that funneled all its money into the Petters ponzi scheme, called Lancelot Management, was charged for securities violation by the regulator. The fund’s manager, Greg Bell, was also charged for not safeguarding how the money was being invested. Palm Beach’s operating agreement, seen by Dealbreaker, was similar to Lancelot’s in that they promised to 1) secure the money they lent with ‘related inventory and the account receivables from inventory purchased’ and and 2) make sure the guy financing the deal was really buying the goods. An action the SEC considers egregious is ‘false assurances to investors.’ Investors believe Prevost and Harrold are guilty of such a charge, having failed to perform their due diligence.
Calls to Prevost and Harrold were not returned for comment.
Robert Khuzami, Director of the SEC’s Division of Enforcement, said, “Bell portrayed himself as a helping hand to investors…. But behind their backs, he was handing over billions of dollars of his client’s money to feed a fraud.” Investors who spoke with Dealbreaker on the condition of anonymity said they expect Palm Beach managers to be charged for securities fraud next and were frustrated that the firm’s managing partners had never told them of the 2007 SEC investigation. According to one whistleblower, Laser Haas, the investigation was run by Luisa Lipins of the South Florida division but no wrong doing was found because the SEC didn’t look into how false returns were being generated in Palm Beach Finance I and II. Instead, their regulator looked at another trade the firm made that involved diluting ownership when the firm took Manchester Inc. private. Sources inside the fund say the SEC came back at the end of 2008 after the Petters news broke.
An SEC investigator in the Lancelot case said he would not confirm or deny that Palm Beach is being investigated for involvement in the Petters fraud, even when confronted with their own letters of communication, but on note on their site states the Petters fraud investigation is still ongoing.
According to Palm Beach’s investor letter, the general partners were going to return some of the investors’ principle and agreed to a settlement but are no longer doing so because two investors individually sued for securities fraud. But according to three investors, no such settlement was realistic, and Prevost/Harrold need to charged with fraud in Florida so investors can go after their personal bank accounts and homes to get what they’re owed.
Attorney Steven Thomas told Dealbreaker, “The funds victims should work together, not seperately, to recover the maxium amount of dollars.” Thomas wouldn’t discuss what other institutions or indivudals the funds general parterns could get money from.
SSR’s attorney Guy Hohmann says, “The evidence is so overwhelming, you have to wonder whether Palm Beach fund managers were that incompetent, or they simply turned a blind eye towards Petters’ activities.”
Last week’s investor letter also warned of bankruptcy and characterized the event as one that would have ‘having positive consequences for investors.’ Ironically, Palm Beach is the second largest creditor in the Petters bankruptcy with $1.05 billion in claims, a claim which has been objected to. Yet they boldly assure investors they’ll get a seat on the creditors committee and expect to get some money out of the bankruptcy court. Also, in an attempt to appear independent, the fund hired a Chief Restructuring Officer named Lewis B. Freeman who they claim has experience getting money in large fraud cases. Sources say there is still $400 million left in firm assets, but it’s held in other funds not affected by the Petters fraud.
Tom Petters was arrested for money laundering by the FBI last October and the SEC said there were $3.5 billion in losses for fund of hedge funds in his Ponzi scheme. For now, court proceedings in the Petters criminal case have been sealed – leaving the victims and the public with few answers about who else conspired in this maze of financial crime and abuse of investor confidence. One such person is a reformed convict turned multimillionaire Frank Vennes, who owns a spreads in Jupiter Island and Minnesota. Sources say Vennes met with Palm Beach’s Prevost and Harrold several times in 2001-2002 at his Minnesota lake home to discuss how the managers would raise money solely to invest directly into Petters.
The first PB Finance fund was started in 2003 and grew to $250 million. The second fund began in 2004 with assets at the time of its shut down of $850 million – both were promoted by Jonathan Spring who raised institutional money for other big hedge funds such as Carrington Capital. The fund’s operating agreements never discuss investing only with Petters. As late as November 2007, Spring sent a letter soliciting a chance to invest more in what were then closed Palm Beach funds. He wrote, “The risks of this strategy are relatively straight-forward and identifiable….risks I have thought carefully about for the past 4 years.”
Vennes, Harrold, and Prevost have yet to be charged criminally for their involvement in Petters fraud. However, the MN US Attorney subpoenaed Vennes’ emails when the feds reported that Vennes knew about the Petters Fraud back in 2007.
Earlier From Teri Buhl: The Real Money Is In Flipping Bank Charters, Not Houses
Teri Buhl is a Wall Street investigative reporter who written for the New York Post, Sunday Business, and HousingWire.com. Her big scoops include breaking news on all things wrong at IndyMac, calling out Bob Steel for lying to investors about losses on CNBC, and shinning a light on Wells Fargo for manipulating earnings with paper accounting gains. She resides in lower Fairfield County, CT.

20 comments (hidden to protect delicate sensibilities)
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Comments (20)

  1. Posted by guest | July 13, 2009 at 5:56 PM

    You forgot to add: Edited by Anil Gupta in Bangalore.

  2. Posted by guest | July 13, 2009 at 6:25 PM

    maybe greg isnt so bad

  3. Posted by guest | July 13, 2009 at 6:36 PM

    Palm Beach Capital
    “Swindling old folks since 1984…”

  4. Posted by guest | July 13, 2009 at 6:46 PM

    Way to stay on this story DB. That’s great that the SEC nailed Lancelot Managment on Friday but isn’t itironic that it took the FBI to investigate Petters before the SEC ever got involved. I have to wonder who else has a peice of the billions that Petters sucked out of investors and is out their spending it while the SEC takes their time to charge these clowns.

  5. Posted by guest | July 13, 2009 at 9:54 PM

    I would like to understand why there has been so little national media exposure on this matter. Where is CNBC?

  6. Posted by guest | July 14, 2009 at 10:31 AM

    “Teri Buhl is a Wall Street investigative reporter who written for the New York Post, Sunday Business, and HousingWire.com”
    ……

  7. Posted by guest | July 14, 2009 at 11:53 AM

    The conclusion to all these Hedge funds turning out to be ponzi schemes, is that they are all thiefs.
    Maybe thats why washington is leaning toward regulation of hedge funds, when you have fraud this big come up over and over.
    I guess the old guy from omaha was right.

  8. Posted by guest | July 14, 2009 at 12:16 PM

    Could someone please, for fuck’s sake, edit Teri’s posts to at least the point of readability?
    I have this nagging feeling that there’s information in there somewhere.
    Thanks.

  9. Posted by guest | July 14, 2009 at 6:29 PM

    http://www.forbes.com/global/2008/1208/038.html
    This above article was written months ago, it corroborates and clarifies (corrects) some of Teri’s facts.

  10. Posted by guest | July 14, 2009 at 9:48 PM

    This article would have much greater credibility if edited before publishing. The extremely poor grammar, misspelled words and improper punctuation make the author look amateurish and unbelievable.

  11. Posted by guest | July 14, 2009 at 11:38 PM

    But we thank her for “shinning” a light on Wells Fargo!

  12. Posted by guest | July 15, 2009 at 12:43 AM

    Not everyone who invests in a fraudulent scheme is a criminal or even an incompetent. Investors don’t become the proud owners of billions of dollars by being idiots, and they don’t invest such money lightly. I think this story is a bit one-sided. Where are the reports on what sort of due diligence was done by the fund managers/investors?

  13. Posted by guest | July 15, 2009 at 12:50 AM

    Very conspiracy-theory-ish. My guess is that so-called “feeder” firms would have been charged by the feds if they had actually done anything wrong. Chances are they are victims just like everyone else who got taken by Petter’s greed.

  14. Posted by guest | July 15, 2009 at 2:01 PM

    #13 – One Feeder Fund was charged by the Feds for wire fraud last Friday – Lancelot.
    I thought this writer was showing us that Palm Beach Capital had similar operating agreements or commitments for the fund and that’s one of the reasons they would be in trouble next. If they acted like Lancelot it looks like they are next to be charged by the FBI for wire fraud and fined by the SEC? The Petters criminal case will be open to the public on Monday so maybe we’ll learn more about the players who helped Petters and are now turning over evidence to the FBI to save their hides like Frank Vennes.
    I think it’s great DB gave us the what if’s in the ongoing Petters saga. I hope they keep following this story.

  15. Posted by guest | January 23, 2010 at 9:51 AM

    Seriously? You all are so stupid. There is zero evidence to support that Prevost, Harold or Vennes are guilty of anything!! Instead letting your bitter asses get the best of you, why not try working together to save some of the money you lost and start over. These companies have no money anymore. You are all wasting your time and the money you have left on pompous, backstabbing lawyers and in the end you will end up with nothing. Get a clue people. Revenge doesn’t solve anything and you could very well get innocent people thrown in jail.

  16. Posted by guest | May 4, 2010 at 11:45 AM

    Having been someone who actually used Hedge Fund money as a “bridge or factoring” loan, I know I and my company had to produce customs papers, container content papers, sales documents with dates of sales…..we literally had to jump through hoops to get the loans. Anyone in charge of the money loaned to Peters who didn’t make sure those electronics were coming into the country, KNEW THEY WERE NOT COMING IN. Just greed in the face of the people who trusted them. Just look at the spending habits of these people for the last couple of years, that will tell the Feds everything they need to know.

  17. Posted by Teri Buhl | October 15, 2010 at 12:30 PM

    http://www.bloomberg.com/news/2010-10-14/palm-beach-capital-is-sued-by-sec-accused-of-funneling-money-to-petters.html

    Dealbreaker is proven right a year latter. Palm Beach Capital was charged by SEC for lying to investors over their role in the Petters fraud.

  18. Posted by guest | November 14, 2010 at 8:15 PM

    You sound like one of the perps in this case. These guys clearly knew what was going on.

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  20. Posted by a705023 | August 31, 2012 at 4:39 PM

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