The U.S. Securities and Exchange Commission (SEC) on Thursday charged two Florida-based hedge fund managers and their funds with fraudulently funneling more than $1 billion of investor money into Tom Petters' Ponzi scheme.

According to an SEC civil action, Bruce F. PrŽvost and David W. Harrold-who operate management and investment advisory firms Palm Beach Capital Management, LP, and Palm Beach Capital Management, LLC-pocketed more than $58 million in fees in conjunction with the Petters investments.

According to the SEC, the transactions in question took place as early as 2004 and lasted through at least June 2008. PrŽvost and Harrold sold interests in their Palm Beach funds to individuals, foundations, family trusts, and other hedge funds throughout the United States.

The SEC said that the Palm Beach fund investors thought that their money was being used to pay for consumer electronics that vendors were re-selling to big-box retailers like Wal-Mart and Costco. PrŽvost, Harrold, and their firms allegedly told investors that those retailers were in turn sending payments directly to the Palm Beach funds' accounts.

In actuality, the payments came from Petters, who raised the money from newer investors-a fact that PrŽvost and Harrold hid from Palm Beach fund investors, the SEC said.

Additionally, the SEC alleges that PrŽvost, Harrold, and their firms worked with Petters to devise a series of bogus transactions. Beginning around February 2008, when the Ponzi scheme began to unravel, Prevost and Harrold began to exchange old loan documents from Petters with new ones to make it look like the business was still profitable.

“PrŽvost and Harrold portrayed themselves as guardians of their hedge fund investors while in fact they facilitated Tom Petters' fraudulent scheme through lies and deceit,” Robert Khuzami, director of the SEC's enforcement division, said in a statement. “Their betrayal cost investors more than $1 billion, while they pocketed millions in fees.”

In the lawsuit, the SEC is seeking a permanent injunction against PrŽvost and Harrold, disgorgement of “all ill-gotten gains,” and an unspecified financial penalty.

Petters, a former Wayzata businessman, was found guilty in December of 20 felony counts relating to fraud, conspiracy, and money laundering, for orchestrating a $3.65 billion Ponzi scheme that spanned a decade.

Petters, who maintains his innocence, was sentenced to 50 years in prison in April. His attorney filed a formal notice of appeal later that month.

Six of the seven co-conspirators who pleaded guilty to charges related to the fraud scheme-Deanna Coleman, Michael Catain, Larry Reynolds, Robert White, Gregory Bell, and Harold Alan Katz -have been sentenced within the past couple of months. James Wehmhoff's sentencing is set for Monday.