The SEC charged 2 FL-based hedge fund managers and their firms with fraudulently funneling more than a billion dollars of investor money into a Ponzi scheme operated by Minnesota businessman Thomas Petters.

Bruce Prévost (Palm Beach Gardens) and David Harrold (Del Ray Beach) falsely assured investors and potential investors that their money would be safeguarded by collateral accounts, Petters ultimately was unable to make payments on investments held by the funds the pair managed.  Prévost, Harrold, and their firms then concealed it from investors by concocting sham note exchange transactions with Petters, whom the SEC charged last year, along with an IL-based hedge fund manager who also facilitated the scheme.

It's alleged that Prévost and Harrold, acting through their firms - Palm Beach Capital Management (LP and LLC) invested more than $1 billion in hedge fund assets with Petters, generating over $58 million in fees.  Petters promised investors that their money would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to such "Big Box" retailers as Wal-Mart and Costco. In reality, Petters's "purchase order inventory financing" business was merely a Ponzi scheme.  There were no inventory transactions, and Petters sold promissory notes to feeder funds like those controlled by Prévost and Harrold, and Petters used some of the note proceeds to pay returns to earlier investors, diverting the rest of the cash to his own purposes.

Apparently, Prévost, Harrold, and their firms began funneling money to Petters as early as 2004, and continued through at least June 2008.  Targeted investors investors included individuals, foundations, family trusts and other hedge funds throughout the U.S.   All the money they raised went into the Petters Ponzi.

For further details, click onto:   [ SEC Litigation Rel. 21694, 10/14 ]