Update: Hedge Fund Bankruptcy Trustee Sues Investment Firms
Monday, October 11, 2010 : Permalink
New York (HedgeCo.net) - The trustee for failed hedge fund Petters Group, Douglas Kelley, has sued the Epsilon-Westford funds founded by Steve Stevanovic, according to Bloomberg.
The bankruptcy trustee is seeking to recoup over $3.2 billion to cover the company’s debt, Bloomberg said, ”Seventeen funds affiliated with the financier’s Westford Investment Management LLC and Epsilon Investment Management LLC were named as defendants in the complaint filed by Kelley.”
“We terminated our relationship with Petters a full 18 months before it became known that Petters was involved in fraudulent activity.” an attorney for the Epsilon-Westford funds said in a statement, “We did so because we elected to invest our capital in other enterprises, not because we believed or had cause to believe that the Petters enterprises were engaged in fraudulent activities.”
Petters and his hedge fund, Petters Group Worldwide LLC was convicted in December 2000, of all 20 criminal counts, adding up to a $3.5 billion fraud.
“The defendant’s fraud is staggering and unprecedented in size and impact on victims and the community,” prosecutors said of the case back in March of this year.
The complaint alleges the defendants knew or should have known the investments were fraudulent, according to Reuters. “Stevanovich received millions in false profits through his active and direct involvement in the Petters Ponzi scheme.”
Petters has stated that he plans to fight to be released from custody and maintains his innocence.
Alex Akesson
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October 11th, 2010
10:49 pm
The following statement is posted at the request of Jay Biagi, an attorney for Westford-Epsilon funds.
October 10, 2010
Doug Kelley’s claim that 17 Westford and Epsilon funds affiliated with Steve G. Stevanovich knowingly invested in fraudulent activity by Petters Group Worldwide is false in each and every respect.
Rather than serving justice, Kelley’s overreaching claim would damage innocent investors and reward those who were involved with Petters until the day his companies were forced into bankruptcy.
It is particularly regrettable, but consistent with his methods throughout these proceedings, that Kelley has chosen to make baseless allegations against our funds and numerous other lenders and organizations that received transfers from Petters. These include GE Capital, banks, investors, corporations and not-for-profits such as St. Jude Children’s Research Hospital, Minnesota Public Radio, The Breast Cancer Research Foundation, St. Cloud American Legion Post 76 and Children’s Heartlink.
We provided funding to various Petters-related entities, including perfectly viable companies such as Petters Consumer Brands (the predecessor to Polaroid) and Fingerhut, at prevailing market rates for short-term, purchase-order financing and other types of credit facilities. In return, we received principal and interest in entirely conventional transactions with terms and conditions consistent with generally accepted lending practices.
Like regulators and so many other victims of Petters, we had absolutely no indication that Petters was engaged in fraud.
Prior to making our investments, we retained one of the top five nationally recognized independent auditors to examine Petters’ business. Neither that examination nor any of the other due diligence that was conducted during the course of our investing uncovered an indication of fraudulent activity. Petters’ fraudulent activity also eluded the SEC and other regulators until a company insider came forward to inform law enforcement.
We terminated our relationship with Petters a full 18 months before it became known that Petters was involved in fraudulent activity. We did so because we elected to invest our capital in other enterprises, not because we believed or had cause to believe that the Petters enterprises were engaged in fraudulent activities.
Several of the investors now represented by the Petters’ bankruptcy trustee had been investors in our funds. Those same investors withdrew their money from us and reinvested in the Petters enterprises through other firms that carried on business with Petters until it declared bankruptcy. Today, these investors are the most significant creditors in the Petters bankruptcy. Ironically, they are now claiming the right to money Kelley wants to claw back from investors in our funds, many of which are pension funds, which had nothing whatsoever to do with Petters’s fraudulent activity.
Steve G. Stevanovich is the Founder and President of Epsilon Investment Management L.L.C. and Westford Asset Management L.L.C. and has more than 22 years of experience in international investment management. Stevanovich had already built a highly successful career in investment banking and corporate finance prior to founding Epsilon and Westford. He has a BA in Economics from the University of Chicago and an MBA from the University of Chicago Graduate School of Business.
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