U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21943 / April 21, 2010
U.S. v. Vennes, Harrold and Prevost, CR 11-141 JRT/JJK
SEC v. Prevost, Harrold, et al., Civil Action No. 10-cv-4235-PAM-SER (D. Minn.)
The Securities and Exchange Commission announced that on April 20, 2011, the United States Attorney, District of Minnesota, obtained indictments against David W. Harrold, age 51, of Del Ray Beach, Florida, and Bruce F. Prevost, age 51, of Palm Beach Gardens, Florida, on four counts of securities fraud for fraudulently marketing investments in hedge funds they managed. Harrold and Prevost are alleged to have invested assets of their hedge funds in notes issued by entities controlled by Minnesota businessman Tom Petters. Petters was in fact operating a multi-billion dollars Ponzi scheme. If convicted, Harrold and Prevost face a potential maximum penalty of five years on each securities fraud count.
Previously, on October 14, 2010, the SEC filed a separate civil action in U.S. District Court for the District of Minnesota alleging that Prevost, Harrold, and their firms Palm Beach Capital Management LP and Palm Beach Capital Management LLC invested more than $1 billion in hedge fund assets with Petters while pocketing more than $58 million in fees. Petters promised investors that their money would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to such "Big Box" retailers as Wal-Mart and Costco. In reality, Petters's "purchase order inventory financing" business was merely a Ponzi scheme. The SEC alleged that Prevost, Harrold, and their firms falsely assured investors that safeguards involving “collateral accounts” were being used to protect their money, when in fact these safeguards did not operate as represented. The SEC further alleged that Prevost, Harrold, and their firms devised with Petters a series of bogus note exchange transactions beginning around February 2008 to conceal Petters’s failure to make payments on the notes.