Monday, March 28, 2011
The SEC announced it obtained an emergency court order to halt an attempt by Marlon M. Quan, a Connecticut-based fund manager, to divert to himself and others settlement funds intended for U.S. victims of a Ponzi scheme operated by Minnesota businessman Thomas Petters. According to the SEC, Quan facilitated the Petters fraud by funneling several hundred million dollars of investor money into the scheme. The SEC alleges that Quan and his firms (Stewardship Investment Advisors LLC and Acorn Capital Group LLC) invested hedge fund assets with Petters while pocketing more than $90 million in fees. They falsely assured investors that their money would be safeguarded by “lock box accounts” to protect them against defaults. When Petters was unable to make payments on investments held by the funds that Quan managed, Quan and his firms concealed Petters’s defaults from investors by concocting sham round trip transactions with Petters.
In its emergency court action, the SEC alleges that Quan, despite a glaring conflict of interest, more recently negotiated an agreement to divert a settlement payment of approximately $14 million relating to a receivership and a bankruptcy of Petters’s entities. Although he purportedly negotiated on behalf of his U.S. fund investors, Quan’s U.S. victims would receive no money under this agreement.
At the SEC’s request, the Honorable Ann D. Montgomery of the U.S. District Court for the District of Minnesota ordered that the money – paid into a firm affiliated with Quan’s Acorn Capital Group LLC – be placed into a segregated account and frozen until further order of the court. A hearing will be held on April 14 to determine the SEC’s request for additional emergency relief for investors.
The SEC previously charged Petters and Illinois-based fund manager Gregory M. Bell with fraud, and filed additional charges against Florida-based hedge fund managers Bruce F. Prévost and David W. Harrold for facilitating the Petters Ponzi scheme. According to the SEC’s complaint, Petters sold promissory notes to feeder funds like those controlled by Quan and his firms. The SEC alleges that Quan and his firms funneled money into the Petters Ponzi scheme beginning as early as 2001 and continuing through 2008.
The SEC seeks entry of a court order of permanent injunction against Quan and his firms as well as an order of disgorgement, prejudgment interest and financial penalties. The SEC also seeks equitable relief against relief defendants Florene Quan, wife of Defendant Quan, and Asset Based Resource Group LLC, an affiliate of corn Capital Group LLC.