The federal judge sought more information about a proposed $14 million payout by a collapsed hedge fund in Connecticut.
A federal judge Friday froze a $14 million settlement between the bankruptcy estate of convicted businessman Tom Petters and the remnants of a Connecticut-based hedge fund once managed by a major participant in the Petters-run Ponzi scheme.
U.S. District Judge Ann Montgomery gave attorneys for the U.S. Securities and Exchange Commission, which sought the freeze, and attorneys for the hedge fund and other interested parties until April 14 to explain the settlement and how the money would be split.
The government is concerned that a portion of the settlement is going to onetime Acorn Capital Group manager Marlon Quan, who the SEC alleges was a critical insider to the Petters operation and knowingly steered hundreds of millions of dollars from his clients into the fraud.
Under terms of the settlement, $5.9 million would be paid to DZ Bank, a German institution that was a lender for Quan, $7 million to the liquidator of Quan's hedge funds and $862,500 to cover Quan's attorneys fees and other expenses.
"The money belongs to all of Mr. Quan's victims, not just some of them," argued SEC attorney John Birkenheier. "Investors in the U.S. will receive nothing."
Brian Michael, the attorney for Quan and his interests, agreed that the funds could be frozen but told Montgomery none of the settlement would go to Quan personally.
"Mr. Quan has been fully cooperative with the SEC," Michael said. "Nothing has been hidden."
The funds in the settlement come primarily from the former estate of Polaroid Corp., which Petters owned at the time of his empire's collapse in 2008, and an aircraft leasing company that was also part of the Petters conglomerate.
The current Petters estate will also receive $3 million from Polaroid.
The government claims Quan started doing business with Petters in 2001 and by 2008 was executing sham "roundtrip" money transfers between his fund and the Petters operation to make it appear that Petters was making payments to investors.
Petters was convicted on fraud, money laundering and conspiracy charges and is serving a 50-year prison sentence in Leavenworth, Kan. Several associates pleaded guilty to one or more related charges and are now doing time as well.
The Ponzi scheme used funds from new investors to pay off old investors, all of whom thought they were financing the purchase of consumer electronic goods for sale to big box retailers.
David Phelps • 612-673-7269