KABOOM! Florida — Again: Palm Beach Operators, Firms Charged With Running Scheme-Within-Scheme In Tom Petters’ Ponzi; More Than $1 Billion Plowed Into Rathole, SEC Says

EDITOR’S NOTE: The SEC has been particularly active in Florida in recent weeks. Now, the agency once again has gone to federal court to allege a spectacular fraud involving people and companies in the Sunshine State. This one involves more than $1 billion and is linked to the Tom Petters’ Ponzi case in Minnesota.

Two Florida men and their companies assisted convicted Ponzi schemer Tom Petters in keeping his $3.65 billion fraud afloat by hatching a scheme-within-a-scheme that assured hedge-fund investors that their money was safe, the SEC said in a lawsuit.

The scheme occurred prior to the filing of criminal charges against Petters in 2008, according to court documents. Petters, who also faces an SEC lawsuit, was convicted of running the Ponzi scheme last year. In April, he was sentenced to 50 years in federal prison.

SEC investigators now say Bruce F. Prévost, 50, of Palm Beach Gardens, and David W. Harrold, 51, of Del Ray Beach “falsely assured their investors and potential investors that the flow of their money would be safeguarded by collateral accounts and described a phony process for protecting their assets.

“When Petters was unable to make payments on investments held by the funds they managed, Prévost, Harrold, and their firms concealed it from investors by concocting sham note exchange transactions with Petters,” the SEC said.

Calling it a “betrayal” that had cost investors more than $1 billion, Robert Khuzami, director of the SEC’s Division of Enforcement, said the Florida men parlayed the losses of others into gains for themselves.

“Prévost and Harrold portrayed themselves as guardians of their hedge fund investors while in fact they facilitated Tom Petters’s fraudulent scheme through lies and deceit,” Khuzami said.

The case was filed in Minnesota.

Prévost, Harrold and their companies — Palm Beach Capital Management LP and Palm Beach Capital Management LLC — pocketed more than $58 million in fees from the scheme, the SEC charged.

At the same time, they raised additional money to plow into the scheme “by borrowing money from two Cayman Islands funds that were also established by Prévost and Harrold,” the SEC charged. The agency identified the offshore funds as Palm Beach Offshore Ltd. and Palm Beach Offshore II Ltd.

“From 2004 through at least as late June 2008, the defendants funneled money into the Petters Ponzi scheme by selling interests in the Palm Beach Funds to investors throughout the United States,” the SEC charged. “Investors in the Palm Beach Funds included individuals, foundations, family trusts and other hedge funds. The Funds invested all investor contributions into the Petters Ponzi scheme. Of the approximately $3.65 billion invested in the Petters Ponzi scheme at the time of its collapse, the Palm Beach Funds accounted for more than $1 billion.”

Florida has been plagued by Ponzi schemes and fraud schemes. In January, U.S. Attorney General Eric Holder ventured to the state to introduce President Obama’s Financial Fraud Enforcement Task Force.

Holder announced the Task Force at a speech in the Palm Beach area, using the event at the Forum Club of the Palm Beaches to drive home the message that Ponzi schemers, mortgage fraudsters and financial criminals are going to have many sleepless nights in the months ahead.

“To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned. “If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.”

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2 Responses to “KABOOM! Florida — Again: Palm Beach Operators, Firms Charged With Running Scheme-Within-Scheme In Tom Petters’ Ponzi; More Than $1 Billion Plowed Into Rathole, SEC Says”

  1. The Petters Bankruptcy Trustee also sued them.