Petters prosecutions end with 2 prison sentences, probation for one local executive

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: November 8, 2013 - 11:24 PM

A Minnesota hedge fund executive who hadn’t pocketed any profits got three years’ probation. Two Florida hedge fund managers received prison terms.

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Michelle Palm left the federal courthouse in St. Paul on Friday after her sentencing in the $3.65 billion Tom Petters Ponzi scheme case.

Photo: GLEN STUBBE • gstubbe@startribune.com,

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Criminal prosecutions in Minnesota’s most notorious financial fraud case came to a close Friday with the sentencing of the final three defendants involved in the $3.65 billion Ponzi scheme orchestrated by jailed former businessman Tom Petters.

The trio of sentencings brought to 126½ years the collective prison terms for the 13 who pleaded guilty or were convicted for their role in the Petters case, whose investigation and prosecution began just over five years ago.

However, there was a first Friday when former hedge fund account manager Michelle Palm became the only defendant in the Petters case to be placed on probation rather than receiving a prison term or home detention.

U.S. District Judge Richard Kyle said Palm’s assistance to the government in its investigation, her genuine remorse and lack of profiteering from the proceeds of the fraud mitigated the need to punish her with jail time.

“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.”

But earlier Friday, two Florida-based hedge fund managers were sentenced to multiple-year prison terms for their roles in providing large sums of money to the Petters operation from investors in their funds.

Hedge fund manager Bruce Prevost was sentenced to 7½ years in prison as one of the key fundraisers in the Ponzi scheme, while his partner David Harrold received a five-year sentence.

Prevost and Harrold each pleaded guilty in 2011 to four counts of securities fraud for misleading investors about the specifics of their investment with the Petters operation from 2002 until 2008, when it collapsed.

Palm, a former hedge fund executive with Minnetonka-based Arrowhead Capital Management, had previously pleaded guilty to one count of securities fraud and one count of providing a false statement to the Securities and Exchange Commission, which she later corrected of her own volition.

“I should have told the truth from the beginning. I knew it was wrong. From then on, I have done everything that I could to make things right,” Palm told Kyle, with a courtroom of her friends and family looking on. “I’m ashamed of my mistakes. Assuming responsibility is another step to reclaiming my integrity and trust.”

Earlier in the day, an emotional and distraught Prevost apologized to his investors, family and friends in the St. Paul federal courtroom.

“I feel a crushing guilt inside,’’ 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 said a substantial prison term was called for because “the amounts here that were lost are huge.’’

Prevost and Harrold lost approximately $720 million for clients by investing in the Petters fraud while collecting more than $58 million in fees and commissions.

Harrold’s comparatively short sentence was based on his “cooperation and substantial assistance’’ to government investigators, Kyle said at sentencing.

Addressing the judge, Harrold said: “I have no excuses for my wrongdoing. When I learned of the Petters Ponzi scheme, it ripped my heart open. It consumes my thoughts every day.’’

Both of the Florida residents were introduced to Petters by Frank Vennes Jr., a born-again ex-convict who served as the financial conduit between their Palm Beach Capital Management operation and Petters. Prevost and Harrold both said their Christian beliefs convinced them that Vennes was on the up-and-up.

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  • PETTERS PONZI SCHEME CONSPIRATORS

    The Friday sentencings of three hedge fund executives close the book on five years of criminal proceedings after the 2008 government raid that took down Tom Petters’ decade-long, $3.65 billion Ponzi scheme. Here’s a list of the 13 players and their sentences, which total more than 126 years:

    Tom Petters: mastermind, convicted, 50 years in prison.

    Deanna Coleman: Petters assistant, pleaded guilty, 366 days in prison.

    Michael Catain: money launderer, pleaded guilty, 7½ years in prison.

    Larry Reynolds: money launderer, pleaded guilty, nearly 11 years in prison.

    Robert White: document fabricator, pleaded guilty, 5 years in prison.

    James Wehmhoff: Petters’ accountant, pleaded guilty, 1 year home detention.

    Gregory Bell: hedge fund manager, pleaded guilty, 6 years in prison.

    Harold Katz: hedge fund accountant, pleaded guilty, 366 days in prison.

    James Fry: hedge fund manager, convicted, 17½ years in prison.

    Frank Vennes Jr.: money raiser, pleaded guilty, 15 years in prison.

    Bruce Prevost: hedge fund manager, pleaded guilty, 7½ years in prison.

    David Harrold: hedge fund manager, pleaded guilty, 5 years in prison.

    Michelle Palm: hedge fund executive, pleaded guilty, 3 years of probation.

    DAVID PHELPS

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