Financier in Petters case free on bail

A federal magistrate judge declined prosecutors' requests Wednesday to detain an Illinois hedge fund manager who allegedly helped Wayzata businessman Tom Petters orchestrate what the government calls a $3.5 billion Ponzi scheme.

Prosecutors argued that Gregory Bell should be held without bail because he has no significant ties to Minnesota, has millions of dollars stashed in offshore accounts and may have, or be able to obtain, citizenship in Russia, which has no extradition treaty with the United States.

Bell was born in Moscow in 1965, emigrated to the United States in 1981 and later became a citizen.

Bell's attorneys argued that he's been cooperative with government prosecutors and regulators investigating the Petters case, and submitted pleadings indicating strong family support in Illinois.

U.S. Magistrate Judge Jeffrey Keyes agreed that Bell's personal and family roots are firmly established in Highland Park, Ill., and ordered him released on a $1.5 million bond. He'll be confined with an electric home monitor and other restrictions.

"If he had set up a system for flight, he would have [fled] by now," Keyes said.

In a related development, U.S. District Judge Richard Kyle agreed Wednesday to a motion by Petters' attorneys to delay his trial so they'd have more time to prepare. Kyle set the trial for Oct. 26, but said he'd "look warily" on similar requests for a delay. More than a year will have passed since Petters' arrest, Kyle noted. "In the court's view, that is a sufficient amount of time to prepare, regardless of how daunting the task may have been."

Bell was arrested Friday in Illinois based on fraud and money laundering charges filed in a criminal complaint. He made his first court appearance Wednesday morning in St. Paul before Keyes. Bell also was present in the afternoon for the detention hearing. He had one attorney from New York and two from Chicago, all from the same law firm.

Assistant U.S. Attorney Tim Rank, who is also prosecuting Petters on conspiracy, fraud and money laundering charges, outlined the case against Bell in a memorandum and in an appearance before Keyes Wednesday. He described Bell as "the lead person responsible for a fraud scheme resulting in a loss to numerous investors collectively of over $1 billion."

Rank's memo says Bell misled investors in his business, Lancelot Investment Management, about the structure of their investments with Petters Co. Inc., the primary vehicle Petters allegedly used in the alleged fraud scheme. From February 2008 to Sept. 24, 2008, when federal agents searched the homes and businesses of Petters and several associates, Rank said, "Bell directed a scheme to route millions of dollars to PCI, which was then immediately returned," making it appear that PCI was a legitimate investment. As a result, Lancelot investors lost more than $1 billion, he says.

The government says Bell undertook an elaborate effort to hide large amounts of money offshore. "In June of 2008, while the fraud scheme in this case was unraveling, Bell set up a Cook Islands 'foreign asset protection trust,' which is touted as a vehicle for protecting money from courts and creditors," Rank's memo says.

Bell's "Blue Sky Trust" account lists his wife and children as beneficiaries. The trustee is another Cook Islands trust, and the account has a "protector" that can veto any act of the trustee. The trust controls an account at the Wegelin Bank in St. Gallo, Switzerland, where Bell wired $15 million last August.

Bell's lead attorney, Seth Farber, told Keyes that the defense was willing to take whatever steps necessary to freeze access to the offshore funds. Farber also argued that Bell's cooperation with the government on both civil and criminal investigations was evidence of his intention to stay in the country.