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Palm Beach Capital Management Sued by SEC in Petters Case

Oct. 14 (Bloomberg) -- Palm Beach Capital Management LP was sued by the U.S. Securities and Exchange Commission for allegedly funneling investor money to Thomas Petters’s $3.5 billion Ponzi scheme.

The firm, Palm Beach Capital Management LLC and principals Bruce Prevost and David Harrold were accused of deceiving investors in a lawsuit filed by the regulator today in federal court in Minneapolis.

“Of the approximately $3.65 billion invested in the Petters Ponzi scheme at the time of its collapse, the Palm Beach funds accounted for more than $1 billion,” according to the complaint. The SEC seeks a court order directing the defendants to disgorge any ill-gotten gain from their venture.

Petters, who led Minnetonka, Minnesota-based Petters Group Worldwide LLC, was sentenced last year to 50 years in prison after his fraud conviction. Prosecutors said he conned investors into underwriting fake purchase orders for consumer goods and used the money to support a lavish lifestyle.

Prevost and Harrold used money from investors to buy more than 2,000 promissory notes from Petters, the SEC said. When the notes came due, rather than redeem them, the defendants exchanged them for new notes purportedly backed by different collateral, while concealing the swap agreements from investors, according to the complaint.

Harrold’s attorney, Mitchell Herr, a Miami-based attorney in New York’s Holland & Knight LLP, and Prevost’s lawyer, Michael Band, each declined to comment on the allegations.

The case is U.S. Securities and Exchange Commission v. Prevost, 10cv4235, U.S. District Court for Minnesota (Minneapolis).

To contact the reporters on this story: Andrew M. Harris in Chicago at; Beth Hawkins in St. Paul, Minnesota, at

To contact the editor responsible for this story: David E. Rovella at

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