The Lancelot Link

Northbrook investment firm accused in Minnesota scandal; Cook County suits filed

A Northbrook investment fund has found itself embroiled on both sides of a spectacular scandal unfolding in Minnesota.

"An Illinois-based investment fund and its management firm have filed a federal racketeering lawsuit in Minneapolis against Tom Petters, his companies and business associates, alleging that the fund lost 'in excess of $1 billion' in a fraud scheme headed by Petters," the Minneapolis Star-Tribune reports.

"Lancelot Investors Fund and Lancelot Investment Management are seeking more than $1 billion in damages in the suit, which was made public Wednesday."HedgeFund.netreports that "Petters was charged with taking investment dollars to back a venture where expensive retail items, like wide-screen TVs, were bought from wholesalers and sold to discount chains. The whole thing turned out to be a fake, according to the charges.

"Before his fall from grace, Petters appeared to be the story of a local boy makes good. His company owns or has stakes in Polaroid Corp., Sun County Airlines Inc. and catalog sales company Fingerhut Direct Marketing Inc. He was also known in Minneapolis for his philanthropic efforts.

At the same time Lancelot is suing, though, it is also being sued.

"[I]nvestors and a Royal Bank of Scotland Group unit filed their own suits against Lancelot Investment Management and its hedge funds for lending the money to Petters' company."

The lawsuits are filed in Cook County.

"The FBI claims Mr. Petters ran a scheme that defrauded investors of millions," Crain's reported this week. "Among the scams was a business venture to supply consumer electronics to major retail chains, but a federal investigation uncovered no inventory. Mr. Petters also holds a minority stake in catalog retailer Fingerhut and owns Sun Country Airlines, a regional carrier that filed for Chapter 11 bankruptcy protection last week.

"RBS claims in its suit that Lancelot provided funding for Mr. Petters' fake electronics business, and that puts the Northbrook investment firm in default of its loans." But reports that Lancelot President Gregory Bell wrote in an investor’s letter the publication obtained that they were a victim.

“We have spoken with other lenders who are similarly situated and with whom we shortly hope to have a coordinated effort to recover assets for our investors,” Lancelot’s President Gregory Bell wrote.

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