Dominoes continue to fall in the fraud case against Twin Cities businessman Tom Petters.
Five investment funds run by Lancelot Investment Management, a hedge fund in Northbrook, Ill., that sank about $1.5 billion into the Petters group of companies, have now gone belly-up and blame Petters directly for their insolvency.
The funds and their subsidiaries filed for Chapter 7 liquidation in U.S. Bankruptcy Court in Chicago Oct. 20.
The Petters companies are in bankruptcy in Minnesota, and Lancelot Investment is the largest creditor in the Petters case. It's one of several hedge funds that invested in Petters' companies. The Lancelot funds invested nearly all of their $1.8 billion in assets with Petters' business entities, court documents show.
Petters, whose holdings include Polaroid and Sun Country Airlines, is fighting federal charges of mail and wire fraud, money laundering and obstruction of justice related to what authorities say is a fraud scheme exceeding $3 billion.
Michael Terrien, an attorney for a trustee for the Lancelot bankruptcies, told U.S. Bankruptcy Judge Gregory Kishel in St. Paul Tuesday that he suspects that other funds may be insolvent as a result of the alleged fraud. He made his comments at a status conference in the consolidated bankruptcy cases involving Petters' companies.
Gregory Bell, president of Lancelot Investment Management, told investors in an e-mail Oct. 21 that management filed the Chapter 7 bankruptcies because the funds' creditors wouldn't release enough assets from the funds to pay for other ways to recover their investments.
"We are disappointed that the massive fraud perpetrated by Petters Co. has now claimed our funds, and each of our investors, as its victims," Bell said in the note.
Jennifer Bjorhus • 612-673-4683