Saturday, July 11, 2009

Petters investor in Illinois charged in fraud

The Securities and Exchange Commission on Friday accused Illinois financier Greg Bell and his company, Lancelot Investment Management, with fraud.

By JACKIE CROSBY, Star Tribune

Last update: July 10, 2009 - 11:29 PM

In the latest twist in the federal racketeering case against Minnesota businessman Tom Petters, federal authorities say a hedge fund manager who claimed to be the biggest victim of Petters' alleged Ponzi scheme was actually a participant in it.

The Securities and Exchange Commission on Friday accused Illinois financier Greg Bell and his company, Lancelot Investment Management, with fraud. In charges filed in U.S. District Court in Minnesota, the SEC also moved to freeze Bell's assets, which include millions of dollars stashed in Swiss bank accounts in the names of Bell and his wife, Inna Goldman.

Separately, Bell was arrested Friday in Highland Park, Ill., and was taken to the Anoka County jail, according to Ron Peterson, a trustee for Lancelot's investors. A criminal complaint against Bell in U.S. District Court in Minneapolis was sealed, but Peterson said the fund manager could appear in court as early as Monday.

A phone number for Bell's business had been disconnected, and attempts to reach his attorneys were unsuccessful.

"Greg Bell portrayed himself as a helping hand to investors -- avidly protecting their funds and verifying the legitimacy of Petters' business," said Robert Khuzami, director of the SEC's Division of Enforcement in a statement. "But behind their backs, he was handing over billions of dollars of his clients' money to feed a fraud."

Investing in Petters

Lancelot, whose clients included individuals, retirement accounts, trusts and other hedge funds, invested $2.6 billion in the Petters group of companies. The SEC alleges that Bell and his company pocketed tens of millions of dollars in fraudulent fees.

The SEC complaint also charges Petters, whose business interests included Sun Country Airlines and Polaroid, with operating a Ponzi scheme. Petters is in jail fighting charges of mail and wire fraud, money laundering and obstruction of justice for masterminding what federal authorities say is a $3.55 billion scheme.

The SEC allegations get to questions about the case that many have asked since Petters was arrested in October 2008. Questions about how much investors knew about Petters' reported activities.

"People have long observed that, at a minimum, there had to be a colossal failure of due diligence on part of these hedge funds," said Doug Kelley, trustee for much of Petters' corporate estate. "And there are certain indicators of fraud that caused everyone to scrutinize them."

Bell had portrayed his Highland Park, Ill.-based company as one of Petters' victims. When Petters' companies collapsed, so did Lancelot Management. Bell sent an e-mail to investors on Oct. 21 after five funds and their subsidiaries filed for bankruptcy, writing: "We are disappointed that the massive fraud perpetrated by Petters Co. has now claimed our funds, and each of our investors, as its victims."

But the SEC alleges that Bell had clear indications that Petters was in trouble but helped prolong the scheme and made sure he got his money out ahead of the eventual collapse.

They say Petters' scheme began unraveling in February 2008, when he was months behind in repaying more than $130 million in notes. The SEC charges Bell with helping Petters concoct a series of bogus transactions designed to hide the fact that he was delinquent.

Bell and Lancelot Management sent money directly to Petters' company under the pretense that the money for investments in a new note, according to the SEC. Petters' employees often returned the money to Bell and Lancelot Management on the same day.

At the same time, Bell is accused of funneling more than $40 million from the Lancelot Funds in the months before Petters' scheme collapsed. Bell put about $30 million of that into accounts and revocable trusts, the SEC said.

Peterson, a Chicago-based attorney appointed as trustee for those Lancelot Management investors, said he had been conducting his own investigation of Bell, suspecting that "he wasn't totally without knowledge." He said the SEC charges were both good news and bad news.

"It adds a defense to the people who we're suing that didn't exist before," said Peterson. "On the other hand, as a result of this, if the government can plea-bargain with Bell in which he fully cooperates, that'll be a great boon."

Jackie Crosby • 612-673-7335

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