Illinois Man Pleads Guilty to Wire Fraud in Connection with Petters Investments

A 44-year-old Illinois hedge fund manager pleaded guilty today to one count of wire fraud in connection with a scheme to defraud and obtain more than $200 million from people investing in Petters Company Inc. (PCI).

Gregory Malcolm Bell, Highland Park, Illinois, entered his plea in St. Paul before United States District Court Judge Paul Magnuson. Bell was arrested on July 10 at his residence outside of Chicago. He was charged by information on September 17, 2009.

In the plea agreement, Bell admitted executing the scheme from February 26, 2008, to September 24, 2008. The agreement states Bell’s hedge fund, Lancelot Investment Management, had all of its money invested in PCI promissory notes.

Bell admitted that after PCI fell behind in paying the notes held by Lancelot, he devised a method to make it appear to Lancelot investors that PCI was paying off its notes when due. That method entailed Lancelot providing funds to PCI that were then used to make payments back to Lancelot. From February 26, 2008, to September 24, 2008, Bell made 86 sham “round-trip” banking transactions that gave investors and potential investors the false impression PCI was paying its promissory notes in a timely manner.

The “round-trip” transactions were preceded by telephone calls or e-mails between Lancelot personnel and PCI personnel about the amounts of money involved. In each of these “round-trip” transactions, money was wired from Lancelot to PCI and then immediately wired back to Lancelot. When the money came back to Lancelot, it was represented as being payment by PCI on the promissory notes held by Lancelot. During this time period, Lancelot raised more than $200 million from 43 new investors based on false representations that the PCI investments were sound and paying positive returns. Bell faces a potential maximum penalty of 20 years in prison for his crime. Judge Magnuson will determine his sentence at a future date.

This case is the result of an investigation by the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorneys John Docherty and Timothy C. Rank. The U.S. Attorney’s Office for the District of Minnesota gratefully acknowledges the generous assistance of the U.S. Attorney’s Office for the Northern District of Illinois in the investigation and prosecution of the case.

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