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Judge keeps fund manager in Petters case jailed
Prosecutors had asserted that $15 million in a Swiss bank makes Gregory Bell a flight risk.
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A Chicago hedge fund manager who allegedly did investment deals with Wayzata businessman Tom Petters will remain in jail pending his trial on fraud and money laundering charges in connection with a Ponzi scheme Petters is accused of orchestrating, a federal judge ruled Tuesday.
After a nearly two-hour hearing, U.S. District Judge Michael Davis ordered the detention of Gregory Bell, ruling that "no condition or combination of conditions" would assure Bell's appearance at a yet-to-be-scheduled trial.
Federal prosecutors argued that Bell's creation of a $15 million offshore trust, which is beyond U.S. government jurisdiction, gives him the incentive and opportunity to flee the country. The potential for a long prison sentence if convicted gives him the motivation, said assistant U.S. Attorney Timothy Rank.
"The preponderance of evidence shows that Mr. Bell is a flight risk," Rank told Davis. "What really matters is that the money is there [in a Swiss bank account] and that Mr. Bell, in a knowing, calculated way, decided to put himself in this situation [with the trust]."
Bell's attorneys argued that he has strong personal and family ties to the Chicago area and would be subject to electronic home monitoring. Bell, a Russian immigrant, has lived in the United States since 1981, most of that time in Chicago, his attorney said.
Defense attorney Seth Farber said Bell "doesn't have a passport. His funds are frozen. He is not a reasonable risk [to flee]. He would not leave his family and go alone."
The ruling by Davis reverses the finding of Magistrate Judge Jeffrey Keyes last week that Bell could be released on bail of $1.5 million under the condition of home monitoring. Keyes determined that Bell's ties to the Chicago area were sufficient to allow him bail.
Bell was arrested on criminal charges earlier this month and also is the subject of a Securities and Exchange Commission (SEC) civil case. He is accused of defrauding investors and helping Petters by moving large amounts of money to and from Petters Co. Inc., the main vehicle for the alleged scheme.
Bell's U.S. assets have been frozen in the SEC action.
According to the government, hedge funds operated by Bell through his Lancelot Investment Management firm were "feeder" funds for Petters. Petters raised money from investors to purportedly finance the purchase of discounted consumer electronics goods for resale to big-box retailers at a profit. But the government contends no electronic goods existed, and the money of new investors was used to pay promised returns to earlier investors.
In the fall of 2007, the scheme started to founder, Rank said, and Bell started moving large amounts of cash to Petters -- $1.4 billion in total -- that Petters recycled directly to Lancelot.
The government alleges that this "roundtripping" was a fraud on investors who thought the money represented profits from the retail sales.
And as the scheme deteriorated, the government says, Bell started to protect himself financially by paying off a $930,000 mortgage on his Chicago-area home and placing $15 million in a Swiss bank account that is under the control of a trustee based on Cook Island in the Pacific Ocean and is only for the use of Bell, his wife and his two children.
David Phelps • 612-673-7269
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