Gregory M. Bell, president of hedge fund Lancelot Investment Management, is facing federal charges that he participated in a Ponzi scheme run by Thomas J. Petters through holding company Petters Group Worldwide.
Criminal charges were filed last week against Mr. Bell in U.S. District Court in Minneapolis by Assistant U.S. Attorney John F. Docherty. Civil fraud charges against Messrs. Bell and Petters and others also were filed last week by the SEC in the same court.
Mr. Petters was arrested in October and remains in custody awaiting trial on a 20-count criminal indictment accusing him of operating a fictitious electronics distribution network that Petters Group used as collateral for loans it had accepted from hedge funds.
According to court documents and an SEC news release, Mr. Bell invested $2.6 billion from three hedge funds that were managed by Lancelot and served as feeder funds to Petters Worldwide.
The SEC claims that Mr. Bell collected “fraudulent fees at the expense of investors in the funds,” which included institutional and high-net-worth investors, and that “when (Mr.) Petters' scheme began to unravel, (Mr.) Bell participated in a series of sham transactions to conceal that (Mr.) Petters owed more than $130 million in investor payments on the notes.”
Lancelot filed for Chapter 7 liquidation of the firm's five hedge funds in U.S. Bankruptcy Court in Chicago in October.
“Mr. Bell was very surprised by the criminal and civil allegations and we look forward to responding to them vigorously in court,” his attorney, Vincent P. “Trace” Schmeltz III, a partner at Dewey & LeBoeuf, said in an interview.
Mr. Bell's first court hearing is on Wednesday.