Hedge fund managers plead guilty to lying to

investors about investments with Petters

MINNEAPOLIS – Earlier today in federal court in St. Paul, two Florida hedge fund

managers pleaded guilty to committing fraud by making material misrepresentations to investors

in their hedge funds concerning investments in Petters Company, Inc. (“PCI”). David William

Harrold, age 51, of Del Ray Beach, Florida, and Bruce Francis Prevost, age 51, of Palm Beach

Gardens, Florida, pleaded guilty to four counts of securities fraud in relation to this crime. Both

men, who were indicted yesterday, along with Frank E. Vennes, Jr., entered their pleas before

United States District Court Judge Richard H. Kyle.

at his business offices and other locations. He was subsequently prosecuted and, in April of

2010, sentenced to 50 years in federal prison. He is currently serving his sentence in the federal

penitentiary in Leavenworth, Kansas.

Petters began the PCI Ponzi scheme in or before 1993. Starting in the late 1990s, he raised

most of the proceeds of the fraud by selling PCI notes to large hedge funds, managed and

operated by hedge fund managers. In their plea agreements, Harrold and Prevost, who owned

and managed the Palm Beach Funds, headquartered in southern Florida, admitted that from

February 20 through September 24, 2008, they defrauded their hedge fund investors by making

false representations to them and not disclosing material facts regarding their investments,

B. Todd Jones, FOR IMMEDIATE RELEASE

United States Department of Justice

United States Attorney’s Office

District of Minnesota

News Release

specifically, the source from which funds were obtained to repay the PCI promissory notes and

the financial performance of the Palm Beach funds invested in PCI.

Harrold and Prevost co-founded Palm Beach Capital Management, which served as the

investment adviser for the four Palm Beach hedge funds. Harold and Prevost admitted in their

plea agreements that in 2002, they began investing the money of their hedge fund investors in

PCI, and as of September 24, 2008, the hedge funds held PCI investments totaling approximately

rather than having the money pass through PCI. As a result, investors were falsely assured that

all PCI transactions were, in fact, occurring. However, Harrold and Prevost knew the hedge

funds received payments from PCI alone and never from retailers. Harrold and Prevost admitted

their misrepresentations regarding the method of receiving payment were material to investors.

Moreover, by February of 2008, millions of dollars of PCI notes were on the verge of

default. Between February and September of 2008, Harrold and Prevost, along with others,

engaged in a scheme to swap more than $1 billion worth of PCI promissory notes to create the

appearance that PCI could repay the notes held by the Palm Beach funds. During that same time

period, however, the two men continued to report to investors that the hedge funds were

generating steady profits and continued to solicit new investors and additional money from

the assistance and support of the Securities and Exchange Commission. It is being prosecuted by

This law enforcement action is in part sponsored by the interagency Financial Fraud

Enforcement Task Force. The task force was established to wage an aggressive, coordinated and

proactive effort to investigate and prosecute financial crimes. It includes representatives from a

broad range of federal agencies, regulatory authorities, inspectors general, and state and local

law enforcement who, working together, bring to bear a powerful array of criminal and civil

enforcement resources. The task force is working to improve efforts across the federal executive

branch and, with state and local partners, investigate and prosecute significant financial crimes,

ensure just and effective punishment for those who perpetrate financial crimes, combat