Thomas Petters Prepares To Face The Music: A Double Madoff?
Thomas Petters, the embattled formerly successful entrepreneur and hedge fund manager of Petters Group Worldwide 
LLC is facing a long prison sentence. 335 years (more than twice the term give to Bernard Madoff). Petters was convicted of on different 20 criminal counts including wire fraud, mail fraud and money laundering and obstructing justice. Here is a video from the Minnesota local news (where Petters was based and was convicted) discussing his conviction:
The Petters Group owned Polaroid, an interest in Sun Country Airlines and at its peak employed over 3,200
employees. The whole thing was a $3.5 billion Ponzi scheme. Here’s a great old video for Polaroid commercial with James Garner (I’m sure he would be very proud of Mr. Petters…):
“The defendant’s fraud is beyond comprehension,” prosecutors said in a court filing. “A life sentence is wholly deserved and justified given the defendant’s corrupting influence on individuals and institutions, and his strident refusal to accept any responsibility.”
Here is a video where Petters discussed the importance of maintaining core values in corporate America:
Perhaps these were the kind of core values Petters was talking about:
Petters’ lawyers said their client should be sent to the Federal Medical Center in Rochester, Minnesota, because of hi
s health and because the national notoriety of his case would make him a “marked man” in prison. He has a pituitary adenoma (or tumor) and faces the risk of blindness and paralysis. Sentencing is scheduled for April 8. Stay tuned to see if the judge sends a message or takes sympathy….
Arthur Nadel Finally Fesses Up To being “Mini-Madoff” : Mike Tyson and the Moody’s
Arthur Nadel a Florida hedge fund manager who, to refresh memories, pulled a Sam Israel and disappeared a little over a year ago just as he was due to pay investors $50 million. Here is a link to our previous post on Mr. Nadel. He later surrendered to authorities in January 2009. Nadel has finally admitted to perpetrating the $162 million fraud.
U.S. District Judge Richard Lazzara in Tampa had previously ordered Nadel’s two companies, Venice Jet Center LLC and Tradewind LLC, into receivership. These were two aviation businesses that were allegedly involved in some questionable proposed deals with Newnan-Coweta County Airport in Georgia.
This is a perfect example of a hedge fund manager being involved in outside business activities. This a topic that should be covered during the operational due diligence process. If this had been uncovered by investors performing operational due diligence on Nadel some logical questions, which might have received answers which likely would have raised red flags could have included:
- Why are you involved in these aviation businesses?
- How much time do you devote to these aviation businesses?
- Where does the money come from to support these businesses?
Tampa lawyer Burton Wiand (pictured left), who was appointed by the judge as receiver for Nadel’s funds, said in a court filing tha
t the businesses were bought with fraudulently obtained money. Nadel ran three different funds the Victory IRA Fund Ltd., Scoop Real Estate LP and Victory Fund Ltd. from about 2002 until his January 2009 arrest.
Here is a video from CNBC about Nadel’s jail time:
Nadel, is 77 years old and according to the The New York Daily News reportedly got a kick out of being called, “a mini-Madoff.”
Nadel said he is now filled with “regret and sorrow… more and more every day” for the grief he caused his family and former investors, the New York Daily News reported.
“I will carry this burden with me every day for the rest of my life,” Nadel said in Manhattan Federal Court as he pleaded guilty to securities, mail and wire fraud.
His plea agreement with prosecutors requires Nadel to forfeit $162 million in gains as well as several properties and other valuable assets. He will receive a sentence of between 151 months and 293 months in prison, the judge said. This works out to a month in jail for every $552,000 to $1.07 million he stole. With only $162 million stolen I doubt Nadel ever made that much in a month – maybe that’s why he decided to steal it.
Here’s another video about the mini-Madoff sentencing:
The Wall St. Journal is reporting that Nadel also said he acted as a trader for three other funds run by Neil V. Moody and his son, Christopher D. Moody, during the period, also committing fraud in those. Why weren’t the Moody’s trading for their own fund? Who was responsible for oversight of Nadel’s trading activity?
Apparently, the U.S. Securities and Exchange Commission had similar questions when they brought civil fraud charges against the Moodys in federal court in
Florida in January. Here is a link to the SEC press release and the affidavit in the case. The Moodys have agreed to be barred from associating with any investment adviser for five years as part of a consent agreement with the SEC. They didn’t admit or deny wrongdoing as part of that agreement. “Neil adamantly denies any knowledge that this was a Ponzi scheme,” said James Felman, a lawyer for Neil Moody. Montieth M. Illingworth, a spokesman for both Moodys, and the apparently a Mike Tyson scholar, declined further comment.
No criminal charges have been filed against the Moodys….
Edward T. Stein’s Life Settlement – A Ponzi Scheme
Hedge fund manager Edward T. Stein was recently sentenced to nine years in prison. Mr. Stein ran a Ponzi scheme which took in at least $30 million ($46 million according this website) that preyed upon friends and acquaintances.
According to Bloomberg, Mr. Stein admitted today to four counts of securities fraud and one charge of wire fraud. Stein told the court:
“I used very poor judgment and I know what I did was wrong, I want to explain to the court how sorry and ashamed I am. Somewhere in the last 10 years I lost my sense of reality and as a result, everyone has suffered. I do want to offer my sincere apologies. I do regret the bad decisions I made.”
Stein will remain free on $2 million bail. He is being represented by attorney Brian Maas.
He was initially accused March 31 of cheating a client out of $6.5 million. Stein faces as much as 19 years and seven months in prison. In April of last year the SEC froze Mr. Stein’s assets.
The SEC also filed a separate civil action that accused Stein, who controls Gemini Fund I hedge fund, DISP LLC and Prima Capital Management Corp., of moving millions of dollars from at least 83 investors through accounts he controlled, according to the complaint filed in federal court in Manhattan.
Stein, who founded DISP, a firm investing in life- settlement policies, deceived clients since 1992 and resorted to stealing their assets, the SEC said in its civil suit.
Here is a sample chart how the life settlement process works. So simple amazing more people couldn’t spot the fraud in this process via operational due diligence….. :
Without telling investors, Stein arranged for Gemini to make its main investment in Detour Media Group Inc., the fashion-magazine publisher that filed for bankruptcy in 2003, the SEC said. Since then, he has used money from new investors to pay returns to “selected” Gemini clients, the agency claimed. He also used investor funds to buy a $1 million condominium in Manhattan, the SEC said.
Stein ran Prima Capital Management Corp. from his offices in Roslyn, New York. He agreed in his plea that he won’t appeal if he’s sentenced to less than 21 years and nine months in prison. Sentencing by U.S. District Judge Jack B. Weinstein is scheduled for September 28.
