MINNEAPOLIS—Three Florida men—a business associate of Thomas J. Petters and two hedge fund managers—were indicted today in federal court in Minneapolis for fraudulently marketing a hedge fund’s investments in Petters Company, Inc. (“PCI”). Frank E. Vennes, age 53, of Stuart, Florida; David W. Harrold, age 51, of Del Ray Beach, Florida; and Bruce F. Prevost, age 51, of Palm Beach Gardens, Florida, were charged with four counts of securities fraud in relation to this alleged crime. In addition, Vennes was charged with one count of money laundering.

PCI was owned and operated by Petters, who represented that funds invested in PCI promissory notes would be used to finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would then resell that merchandise, for a profit, to certain “big box” retailers, including Sam’s Club and Costco. In truth, however, no merchandise was bought or resold. Instead, Petters diverted for his own personal benefit hundreds of millions of dollars. His $3.65 billion Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business offices and other locations. He was subsequently prosecuted and, in April of 2010, sentenced to 50 years in federal prison. He is currently serving his sentence in the federal penitentiary in Leavenworth, Kansas.

Petters began the PCI Ponzi scheme in or before 1993. Starting in the late 1990s, he raised most of the proceeds of the fraud by selling PCI notes to large hedge funds, managed and operated by hedge fund managers. Hedge fund managers had a fiduciary duty to their investors. They made representations to their investors regarding the investments, the due diligence performed on the investments, and the financial mechanisms put in place to protect the hedge fund’s investments in PCI. In exchange for their efforts, the hedge fund managers obtained management fees from investor funds.

The indictment returned today charges Harrold and Prevost with defrauding hedge fund investors. The men co founded Palm Beach Capital Management, which served as the investment adviser for the four Palm Beach hedge funds. According to the indictment, Vennes directed Harold and Prevost to communicate with Petters and PCI only through him. In November of 2002, Harrold and Prevost purportedly first invested hedge fund money in PCI, and as of September 24, 2008, the hedge funds reportedly held PCI investments totaling approximately $1 billion. Between 2002 and 2008, Harrold and Prevost’s companies allegedly grossed more than $58 million in management fees. For his part, Vennes received more than $60 million in commissions based on the Palm Beach investments in PCI.

Allegedly, the defendants made material misrepresentations and concealed material information about the PCI investments in order to induce investors to purchase securities. For example, investors were told that when a retailer purchased consumer electronics or other goods from PCI, those products were paid for by the retailer with funds directly deposited into a bank account under the control of Harrold and Prevost’s management companies. As a result, investors were falsely assured that all PCI transactions were, in fact, occurring. However, the defendants knew the hedge funds received payments from PCI alone and never from retailers.

Moreover, by February of 2008, millions of dollars of PCI notes were on the verge of default. Between February and September of 2008, the defendants engaged in a scheme to swap more than $1 billion worth of PCI promissory notes to create the appearance that PCI could repay the notes held by the Palm Beach funds. All note swaps allegedly went through Vennes. During that same time period, Harrold and Prevost allegedly continued to report to investors that the hedge funds were generating steady profits and, encouraged and assisted by Vennes, solicited new investors and additional money from existing investors, raising more than $75 million in new money from more than 30 investors.

If convicted, the defendants face a potential maximum penalty of five years on each securities fraud count, while Vennes is subject to as much as ten additional years in federal prison for money laundering. All sentences will be determined by a federal district court judge.

This case is the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service – Criminal Investigation Division, and the U.S. Postal Inspection Service, with the assistance and support of the Securities and Exchange Commission. It is being prosecuted by Assistant U.S. Attorneys Timothy C. Rank and John Docherty.

This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by a defendant. A defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.

PREET BHARARA, the United States Attorney for the Southern District of New York, and JANICE K. FEDARCYK, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced that WINIFRED JIAU, a/k/a “Wini,” was arrested yesterday afternoon on charges relating to her involvement in an insider trading scheme. JIAU has been charged with conspiring to commit securities fraud, and engaging in securities fraud, by selling material, nonpublic information (“Inside Information”) about publicly traded companies to multiple hedge funds for the purpose of executing profitable securities transactions.
According to the Complaint unsealed today in Manhattan federal court:
Between 2006 and December 2008, JIAU obtained Inside Information, including detailed financial earnings, about multiple publicly traded companies, including NVIDIA Corporation (“NVIDIA”) and Marvell Technology Group, Ltd. (“Marvell”). JIAU sold that information to portfolio managers at hedge funds. The hedge funds then traded on the information provided by JIAU. In return, the hedge funds paid JIAU over $200,000 over the two-year period; such payments were made through an expert networking firm that purported to provide “institutional money managers and analysts with market intelligence” through a “Global Advisory Team of Experts.”

For example, on May 23 and May 28, 2008, JIAU had telephone conversations with two portfolio managers at separate hedge funds, during which she advised the portfolio managers of Marvell’s quarterly revenues, gross margins and earnings per share (“EPS”) for the Marvell quarter ending on May 3, 2008. Similarly, in August 2008, JIAU provided the same hedge fund managers with Marvell’s quarterly revenues, gross margins and EPS for the following quarter, ending on August 2, 2008. Both times, the information JIAU provided was on point and accurate and preceded Marvell’s public announcement of its quarterly financial results. In her conversations with the hedge fund managers, several of which were recorded by one of the hedge fund managers, JIAU made clear that she received the Inside Information from an employee at Marvell. By trading on the Inside Information JIAU provided regarding Marvell’s earnings for the quarter ending May 3, 2008, one of the hedge funds netted profits of over $820,000 from trades in Marvell securities.

JIAU, 43, of Fremont, California, has been charged with one count of conspiracy to commit securities fraud (Count One) and one count of securities fraud (Count Two). Count One carries a maximum potential penalty of 5 years in prison and a fine of $250,000 or twice the gross gain or loss from the offense, and Count Two carries a maximum potential penalty of 20 years in prison and a maximum fine of $5 million.
JIAU was arrested at her residence in Fremont, California on December 28, 2010, and will be presented before Magistrate Judge NANDOR J. VADAS in the Northern District of California this morning at 9:30 a.m. PST.

Mr. BHARARA praised the investigative work of the New York Office of the FBI. He thanked the FBI San Francisco Division for conducting the arrest on behalf of the FBI. He also thanked the U.S. Securities and Exchange Commission for its assistance. Mr. BHARARA also noted that the investigation is continuing.

This case was brought in coordination with President BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President OBAMA established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys AVI WEITZMAN and DAVID LEIBOWITZ, and Special Assistant U.S. Attorney ANDREW MICHAELSON are in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

PREET BHARARA, the United States Attorney for the Southern District of New York, announced that ALI HARIRI, a former executive at Atheros Communications, Inc. (“Atheros”), was sentenced today in Manhattan federal court to 18 months in prison for his participation in the largest hedge fund insider trading case in history. U.S. District Judge RICHARD J. HOLWELL, who imposed the sentence, also imposed a two-year term of supervised release and a $50,000 fine.
Manhattan U.S. Attorney PREET BHARARA said: “Ali Hariri’s sentencing provides another reminder of how pervasive insider trading has become and the lengths to which corrupt insiders will go to misuse confidential information for their own personal gain. It should also remind those who might contemplate similar crimes that we will ultimately find you, prosecute you, and convict you. This office is committed to stopping insider trading in its tracks to protect the integrity of our markets.”
According to documents previously filed in Manhattan federal court and statements made during HARIRI’s guilty plea proceeding:
From 2008 to March 2009, HARIRI, a vice president at Atheros, engaged in an insider trading scheme in which he obtained material, nonpublic information (“inside information”) relating to Atheros. HARIRI provided this inside information to ALI FAR, a hedge fund manager, for the purpose of executing profitable securities transactions. HARIRI knew that the information he provided to FAR was material and non-public, and he disclosed it in breach of fiduciary and other duties of trust and confidence that he owed to ATHEROS. In exchange for inside information regarding Atheros, FAR provided HARIRI with tips to buy and sell the stocks of other technology companies.
On March 3, 2010, HARIRI, 39, of San Francisco, California, pled guilty to conspiring to commit insider trading crimes. HARIRI also pled guilty to substantive securities fraud. FAR has also separately pled guilty to conspiring to commit insider trading crimes and to substantive securities fraud. He is awaiting sentencing.
Mr. BHARARA praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission. Mr. BHARARA noted that the investigation is continuing.
This case was brought in coordination with President BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a co-chair of the Securities and Commodities Fraud Working Group. President OBAMA established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
This case is being handled by the office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys JONATHAN STREETER and REED BRODSKY and Special Assistant U.S. Attorney ANDREW MICHAELSON are in charge of the prosecution.