Lancelot Investment Management - hedge fund ponzi scheme?

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2008-10-30

Count of distinct funds: 5
Capital base: $1.8 billion
Loss: 100% — bankruptcy

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stories: finalternatives.com

FINalternatives reports that five hedge funds under Lancelot Investment Management are filing for bankruptcy due to beign defrauded by Tom Petters, the fund manager. According to the article:

The five Lancelot funds and their subsidiaries filed for Chapter 7 liquidation in U.S. Bankruptcy Court in Chicago last week. According to court documents, the funds invested about $1.5 billion of their $1.8 billion in assets in Petters' business entities, which, in addition to his hedge funds, include Polaroid and Sun Country Airlines.

Apparently, the funds were forced into bankruptcy as the fund creditors "won't release their assets".

Regarding the allegations of fraud against Petters:

Petters is accused of defrauding victims of some $3 billion, and faces federal charges of mail and wire fraud, money laundering and obstruction of justice.

An by the Star Tribune elaborates on the allegations against Petters, noting that his alleged fraudulent activities occurred over some thirteen years.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.