Florida and Ponzi schemes… never a week goes by without news of another Florida fraudster being caught in a massive fraud scheme. This week is no exception.
The Securities and Exchange Commission announced charges against two Florida hedge fund managers. The men are accused of funneling more than a billion dollars of investor money into a Ponzi scheme run by Thomas Petters of Minnesota. The government says Bruce Prevost and David Harold raised over $1 billion by lying to investors. The SEC’s complaint says the two told clients their money was being used to finance the purchase inventories of consumer electronics.
Unfortunately none of the money was used to purchase any consumer electronics. Petters raised billions of dollars from feeder funds such as those run by Prevost and Harold and simply used the money for his own purposes.
One could say that Prevost and Harold were simply duped like the thousands of victims who invested in the scheme. The problem, however, is that the two repeatedly told investors that they would personally monitor transactions and pay the monies directly to the electronics vendors. They didn’t and never intended to do so, says the SEC’s complaint. Instead they forwarded the money directly to Petters and pocketed $58,000,000 for their efforts.
When the scheme began to unravel, the two began to simply exchange new investments for old. They also sent statements to their clients reporting “steady profits.” The actions of Prevost, Harold and Petters have all the signs of a classic Ponzi scheme.
What is interesting about this scheme is the pedigree of Petters and how the scheme lasted so many years before it collapsed.
Petters will now always be known for his crimes against investors. (He is currently serving a 50 year sentence in Leavenworth.) Prior to his indictment, he was well known for his purchase of Polaroid, Fingerhut and Sun Country Airlines – business that he apparently ran along side his Ponzi scheme.
Prior to joining the ranks of the incarcerated, Petters was awarded a Corporate Leader of the Year in 2001 and a Distinguished Humanitarian Award. He also donated millions of dollars to Florida colleges and universities. Millions of dollars of other people’s money.
The government believes that the fraud scheme began as early as 1995. Including the $1 billion raised by Prevost and Harold, the scheme is believed to have defrauded investors out of $3.65 billion. Not quite Madoff territory but enough to gain the three admittance to the Billionaire Hall of Shame.
David Harold and Bruce Prevost Criminally Charged
The SEC may have been first with charges but those were civil. Shortly after this story was first posted, both men were charged criminally. In 2011 Bruce Prevost and David Harold pled guilty to 4 counts of criminal securities fraud. Prosecutors say that even after the men knew that Petters company was going to default, they kept right raising money.
Prevost was sentenced to 90 months in prison. He appealed his sentence that the government had promised him leniency if he cooperated with them.
In 2014, a three judge appeals panel unanimously affirmed his sentence.
For the three men (we will include Petters), the cases were over. But they never end for most victims of Ponzi schemes. That is because the money is rarely recovered. Sure, an SEC receiver will get back something but often that is just pennies on the dollar.
We look to third parties – parties with deep pockets – to see if they were culpable or somehow aided and abetted the scheme. Sometimes that means lawyers, stockbrokers, accountants and banks.
Have you been ripped off by a phony investment scheme or by a bad stockbroker? Contact us today. Attorney Brian Mahany has years of investment fraud experience, experience that can mean the difference in getting your money back. [Our minimum loss figure is $1 million unless we can develop a class action case on behalf of several investors.]
For more information, visit our investment fraud recovery page. Ready to see if you have a case? Contact Brian today by email at