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Two Minnesota-based hedge fund managers and their firm have been charged with helping Minnesota businessman Thomas Petters carry out his multi-billion dollar Ponzi scheme.
The SEC announced in a complaint Wednesday that James Fry, Michelle Palm, and Fry’s firm Arrowhead Capital Management were charged with securities violations.
The SEC alleged that Fry and Palm, and Arrowhead Capital invested more than $600 billion in hedge fund assets with Petters while collecting more than $42 million in fees.
The agency also alleged Fry, Palm, and Arrowhead falsely assured investors and potential investors that their money would be safe through certain collateral accounts.
The agency then alleged that Fry, Palm, and Arrowhead hid Petters’ inability to pay back investors by entering into secret note extensions with Petters.
Petters was sentenced in April 2010 to 50 years in prison for orchestrating the scam that took in $3.7 billion in investor money that was supposed to be placed in funds investing in asset-backed paper, the assets being large-ticket appliances. But the transactions and the paper turned out to be fictitious.
Palm pleaded guilty to one count of securities fraud and one count of making false statements to SEC staff during investigative testimony.
Fry pleaded not guilty to multiple counts of securities fraud, wire fraud, and making false statements to SEC staff during investigative testimony. He is scheduled to go on trial in February.
SEC Complaint Against Funds in Petters Ponzi Scam
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