Petters case: Hedge fund manager pleads guilty

  • Article by: DAVID PHELPS
  • Star Tribune
  • October 7, 2009 - 8:56 PM

Gregory Bell, a Chicago hedge fund manager, Wednesday became the sixth person to plead guilty to federal charges in the multibillion-dollar Ponzi scheme allegedly masterminded and orchestrated by Wayzata businessman Tom Petters.

Bell, a jailed Russian immigrant whom the government considers a risk to flee the country, pleaded guilty to one count of mail fraud in U.S. District Court in St. Paul before Judge Paul Magnuson. Bell remains in federal custody in the Anoka County Jail.

Under questioning by Assistant U.S. Attorney John Docherty, Bell acknowledged that he helped engineer multiple financial transactions between his company, Lancelot Investment Management, and Petters Company Inc. (PCI) to create the appearance that PCI was repaying investments made by Lancelot. The ruse deceived investors funding the transactions.

Bell faces up to 20 years in prison and a $250,000 fine. He will be sentenced at a later date.

Bell's guilty plea was accepted by Magnuson less than an hour after attorneys for Petters and the federal government discussed jury-selection procedures for Petters' trial, scheduled for Oct. 26. Jury selection will be conducted Oct. 22 before U.S. District Judge Richard Kyle.

Bell joins an accounting executive from his firm and four close associates of Petters who have pleaded guilty to various criminal charges relating directly to the alleged $3.65 billion investment fraud scheme. Petters' accountant Jim Wehmhoff pleaded guilty to conspiracy and tax charges.

According to the government, Petters solicited investments to buy consumer electronic goods for resale through big-box retailers when no goods actually existed.

Standing before Magnuson in baggy sweat clothes, the diminutive Bell, with a streak of gray in his otherwise dark hair, responded affirmatively as Docherty outlined a plot to prop up Petters' failing business by allowing Lancelot to finance 86 "round-trip" financial transactions between the hedge fund and PCI so that Lancelot investors would believe that PCI was current on its obligations.

Bell acknowledged that the phony transactions occurred as Lancelot obtained between $200 million and $400 million from new investors.

After Petters' arrest last October Lancelot filed for bankruptcy liquidation, claiming losses of $1.5 billion on its PCI investments.

Harold Katz, a Lancelot accounting executive, pleaded guilty last month to one count of conspiracy to commit wire fraud for his role in creating a phony spreadsheet to show investors that PCI payments were being made on time.

The other guilty pleas for their roles in the alleged scheme came from Deanna Coleman for conspiracy, Robert White for mail fraud and illegal monetary transactions, and Michael Catain and Larry Reynolds for money laundering conspiracy.

Bell was placed in federal custody in July after he was charged and prosecutors learned that he had shipped $15 million to a Swiss bank account and put it under the control of an obscure offshore trust. Prosecutors argued that the funds could be used by Bell to flee the country.

Earlier this week Bell's wife, Inna Goldman, made a tearful plea before Judge Ann Montgomery to increase the living-expense allowance for her and the couple's two children from about $4,000 a month to $5,000 a month. The family finances have been frozen by a Securities and Exchange Commission enforcement action.

"We have absolutely nothing," said Goldman.

But SEC attorney John Birkenheier questioned the need for more living expenses.

"There's been a huge change in the Bell household," Birkenheier told Montgomery. "For years they lived as millionaires. That has stopped and won't resume in the foreseeable future."

In a related matter, Magistrate Judge Arthur Boylan denied a request by attorneys for Petters to file motion documents under seal. The judge said the document should be filed with redacted identification information. The proposed sealing was opposed by the Star Tribune.

David Phelps • 612-673-7269

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