Final 3 defendants sentenced in Petters $3.65 billon scheme
Published 10:00 am Monday, November 11, 2013
ST. PAUL — The final three defendants have been sentenced in the $3.65 billion Ponzi scheme led by Minnesota businessman Tom Petters.
U.S. District Judge Richard Kyle handed down a 7 1/2-year sentence Friday to hedge fund manager Bruce Prevost for his role in misleading investors in Palm Beach Capital Management, a Florida hedge fund that put money into Petters’ scheme before it collapsed in 2008. He sentenced David Harrold, another principal in Palm Beach, to five years.
But another defendant, Michelle Palm, the former managing director of Arrowhead Capital Management in Minnetonka, got only probation.
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The three sentencings brought to 126 1/2 years the collective prison terms for the 13 people who pleaded guilty or were convicted for their roles in the Petters case. Palm is the only defendant who didn’t receive a prison term or home detention.
Kyle cited Palm’s assistance to the government’s investigation and her genuine remorse and lack of profiteering from the fraud.
“Miss Palm made a mistake,” Kyle said. “She appears to be the only one in the Petters scene who did not make a profit one way or another. She has her head on straight.”
Prevost and Harrold both apologized in court for their actions, which cost their clients about $720 million while they collected more than $58 million in fees and commissions.
“I feel a crushing guilt inside,” a distraught Prevost said. “I wasn’t honest and I wasn’t fair to you (investors), and I am sorry for your pain and your loss.”
Kyle gave Harrold a lesser sentence because of his assistance to investigators.
“I have no excuses for my wrongdoing,” Harrold told the judge. “When I learned of the Petters Ponzi scheme, it ripped my heart open. It consumes my thoughts every day.”
None of the three people sentenced Friday were accused of knowing about the Ponzi scheme, but they misled investors about how their firms received payments from Petters.
Petters, who was convicted of fraud in 2009, recently admitted his guilt in public for the first time. He’s seeking to reduce his 50-year term for masterminding the scheme. His Petters Co. Inc. subsidiary solicited billions of dollars from hedge funds and other investors who thought they were providing short-term financing for surplus electronics goods that would be resold to big retailers. In reality, the merchandise never existed and older investments were repaid with money from newer investments.
Both Palm Beach Capital and Arrowhead Capital were connected to Petters through Frank Vennes, an ex-con who brought investors into the Ponzi scheme. Vennes pleaded guilty earlier this year and was sentenced last month to 15 years in prison.