New York (HedgeCo.net) – Two Florida hedge fund managers, David William Harrold and Bruce Francis Prevost, pleaded guilty at the end of last week to four counts of securities fraud. The FBI has accused the two of misrepresenting their hedge funds to investors in the case involving Petters Company, Inc. (“PCI”).
In their plea agreement, the hedge fund managers admitted to defrauding their investors in 2008 by making false representations about their investments in PCI promissory notes.
Purportedly, PCI would buy and resell merchandise for a profit, to certain “big box” retailers, including Sam’s Club and Costco. In truth, however, no merchandise was bought or resold. Instead, Tom Petters diverted hundreds of millions of dollars for his own personal benefit.
Petters is currently serving his sentence in the federal penitentiary in Leavenworth, Kansas.
Harold and Prevost admitted in their plea agreements that by September 24, 2008, their hedge funds held PCI investments totaling approximately $1 billion. Harrold and Prevost admitted that between 2002 and 2008, their companies grossed more than $58 million in management fees.
By February of 2008, millions of dollars of PCI notes were on the verge of default. Between February and September of 2008, Harrold and Prevost, along with others, engaged in a scheme to swap more than $1 billion worth of PCI promissory notes to create the appearance that PCI could repay the notes held by the Palm Beach funds.
During that same time period, however, the two men continued to report to investors that the hedge funds were generating steady profits and continued to solicit new investors, raising more than $75 million in new money from more than 30 investors.
The hedge fund managers each face a maximum penalty of 20 years, five years on each securities fraud count.
Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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