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Hedge Fund Accountant Charged In Petters Fraud

Date: Tuesday, September 1, 2009
Author: FINalternatives

A second hedge fund executive has been charged in the Tom Petters Ponzi scheme case.

Harold Katz, vice president of finance and accounting at Lancelot Investment Management, appears to be cooperating with investigators as they build their case against Petters, a Minnesota businessman and hedge fund manager, and Gregory Bell, the founder of Lancelot. The charges against Katz were unsealed Friday by a federal judge in St. Paul, Minn.

According to the Securities and Exchange Commission, which has filed separate civil charges against Lancelot and Bell, the hedge fund steered nearly all of the money it raised—some $2 billion—to Petters’ alleged $3 billion Ponzi scheme. When that fraud began to unravel last year, the SEC says Bell and Petters cooked up a series of bogus payments to cover up Petters’ delinquency on more than $130 million in allegedly phony notes sold by Petters to Lancelot.

According to the documents unsealed last week, Katz crafted the bogus documents to fool investors into believing that Petters was making good on his loan payments. He allegedly helped Bell wire money to Petters, money that was quickly wired back to create the impression that Petters was paying. Prosecutors also said that Katz created a spreadsheet to show an investor that Petters was, in fact, paying down the notes in a timely fashion.

“The transactions were structured to make it look like PCI was paying off an outstanding PCI promissory note, and Lancelot investors were not advised that Lancelot was in fact funding those payments,” prosecutors allege.

The roundtrip payments not only helped cover up Petters’ alleged misdeeds, prosecutors say. It also allowed Highland Park, Ill.-based Lancelot to raise a further $243 million.

Katz is scheduled to enter his plea on Sept. 2.