Two hedge fund managers pleaded guilty Thursday to charges of securities fraud one day after their indictment for wrongdoing in the Tom Petters Ponzi scheme.

Florida residents David Harrold and Bruce Prevost each pleaded guilty to four fraud counts for misleading clients about the nature of their investments with Petters Cos. Inc. (PCI) as it came crashing apart in 2008.

The two made their plea in a hastily called appearance before U.S. District Judge Richard Kyle. Dressed in business attire, each answered questions matter-of-factly around their participation in the scheme.

Both also entered into a plea agreement with federal prosecutors that involves the potential for a reduced sentence in exchange for their cooperation in an ongoing criminal investigation stemming from the Petters case. Sentencing guidelines on the fraud charges call for a sentence in the range of slightly more than 11 years to 14 years.

A third defendant indicted Wednesday, Frank Vennes Jr., is expected to make his first court appearance next week. On Wednesday night his attorney, James Volling, said he was "disappointed" with the indictment and that he and his client would "vigorously contest it."

Vennes faces the same fraud charges as Harrold and Prevost plus a money-laundering charge.

The $3.65 billion Petters Ponzi scheme involved the fictitious sale of consumer electronic goods to big-box retailers.

The charges against Harrold, Prevost and Vennes say that investors were led to believe their returns came directly from retailers. But in reality it was PCI that was paying old investors with the funds of new investors. As the fraud collapsed, investors were not informed that promissory notes from PCI to the hedge funds were about to default, according to the indictment.

Harrold and Prevost acknowledged in court Thursday that they rolled $8 billion in investments through PCI from 2002 to 2008. According to the government, they collected more than $58 million in commissions for those transactions. They ran several hedge funds under the umbrellas of Palm Beach Capital Management.

David Phelps • 612-673-7269