Three New Petters-Related Indictments Surface

A business associate of Tom Petters and two hedge fund managers were indicted for fraudulently marketing a hedge fund's investments in Petters Company, Inc.

The Tom Petters saga continues to unravel, as three men from Florida have been charged for securities fraud related to the marketing of a hedge fund's investments in Petters Company, Inc. (PCI), federal prosecutors said on Wednesday.

Frank Vennes, 53; David Harrold, 51; and Bruce Prevost, 51, were each charged with four counts of securities fraud. Vennes was also charged with one count of money laundering, Minnesota's U.S. Attorney's Office said.

There has long been speculation regarding whether Vennes would be charged in the Petters case, as his name was mentioned in an affidavit from the Federal Bureau of Investigation (FBI) when the Petters scheme began to crumble. Petters stated that Vennes and other co-conspirators had knowledge of his fraud scheme, according to the affidavit.

Beginning in the late 1990s, Petters raised money to perpetuate a Ponzi scheme by selling PCI notes to hedge funds. Harrold and Prevost co-founded Palm Beach Capital Management, which served as the investment adviser for four Palm Beach hedge funds.

The indictment alleges that Vennes told Harrold and Prevost to communicate with Petters and PCI only through him. Harrold and Prevost invested funds in PCI-and their companies received more than $58 million in management fees as a result. Vennes got more than $60 million in commissions based on the Palm Beach investments in PCI, prosecutors say.

The three Florida men are accused of lying to investors in order to get them to purchase securities. Investors were told, for example, that when a retailer bought products from PCI, it paid for them through funds deposited into an account overseen by Harrold and Prevost. According to the indictment, the men knew that the hedge funds were actually receiving payments from PCI rather than from retailers.

In early 2008, millions of dollars worth of PCI notes were nearing default, and the trio allegedly devised a scheme to swap more than $1 billion worth of PCI notes to make it appear that PCI had sufficient funds to repay the notes held by the Palm Beach funds. During this time, Harrold and Prevost continued to tell investors that the hedge funds were profitable and attracted new investors.

The three Florida men each face a potential maximum penalty of five years in prison on each securities fraud count. Vennes faces up to 10 additional years for the money laundering charge he faces.

Petters is currently serving a 50-year prison sentence in Leavenworth, Kansas for running a Ponzi scheme that defrauded investors of an estimated $3.65 billion. Petters filed an appeal shortly after he was sentenced, and he recently told federal judges that his trial was tainted and he deserves another.

In October 2008, shortly after the Petters scheme was uncovered, the government froze the assets of several defendants, and two separate receiverships were established-one that includes the assets of Vennes and the entities under his control, and one that contains the assets of all other defendants.

Gary Hansen, who oversees the Vennes receivership, told Twin Cities Business in January that an agreement was reached between Vennes, the government, and himself-which will allow some of Petters' victims to get back a portion of the money they lost.

Many of Petters' co-conspirators have been sentenced, but allegations continue to surface: The U.S. Securities and Exchange Commission last month sued a Connecticut hedge fund and its manager in connection with money they sent to convicted fraud scheme operator Tom Petters and pocketed in fees. And a hedge fund manager from Edina pleaded guilty earlier this month to concealing information from investors and lying to the SEC.

 

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