7.10.2009 The SEC brought fraud charges and obtained an asset freeze against a Highland Park, Illinois-based hedge fund manager and his firm for facilitating a multibillion-dollar Ponzi scheme operated by Minnesota businessman Thomas Petters. The SEC alleges that Gregory Bell and Lancelot Management LLC invested more than $2 billion in hedge funds assets with Petters and pocketed millions of dollars in fraudulent fees at the expense of investors in the funds. The SEC also charged Petters with fraud for perpetrating the massive Ponzi scheme through the sale of notes related to consumer electronics.
When Petters’ scheme began to unravel, Bell participated in a series of sham transactions to conceal that Petters owed more than $130 million in investor payments on the notes. According to the SEC, Petters carried out his Ponzi scheme from as early as 1995 through September 2008, promising investors that proceeds from the notes they were sold would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to “Big Box” retailers including such well-known chains as Wal-Mart and Costco. Instead, the “purchase order inventory financing” business was a complete sham, and the vendors secretly returned most investor money back to Petters, who diverted billions of dollars for his own purposes.
The SEC alleges that Petters sold the notes to several feeder funds that in turn raised their investment capital from hundreds of private investors in the United States and abroad. Beginning in 2002, Bell and Lancelot Management raised approximately $2.62 billion from hundreds of investors through the sale of interests in three hedge funds they managed (Lancelot Investors Fund, L.P., Lancelot Investors Fund II, L.P., and Lancelot Investors Fund, Ltd.). The investors included individuals, retirement plans, individual retirement accounts, trusts, corporations, partnerships, and other hedge funds. Bell and Lancelot Investment used almost all of the fund assets to purchase notes offered by Petters and his companies.
Click http://www.sec.gov/litigation/litreleases/2009/lr21124.htm to access the SEC litigation release.