Fund Manager Accused of Aiding Petters Found Liable by Jury

Feb 12, 2014 12:01 am ET

Feb. 12 (Bloomberg) -- A Connecticut fund manager accused of aiding Minnesota businessman Thomas Petters’s $3.5 billion fraud scheme was found liable for securities fraud by a federal court jury in Minneapolis.

Jurors returned a mixed verdict yesterday, finding that Marlon Quan breached five of the seven securities laws the U.S. Securities and Exchange Commission accused him of violating in its 2011 lawsuit. The jury cleared him of similar conduct on another count and an aiding-and-abetting claim.

The SEC said in a statement that, based on the verdict, it will seek a fine and a court order restraining Quan’s activity in the securities industry. Chris Casamassima, a lawyer for Quan, said by e-mail that the divided outcome showed that the regulator failed to prove its fraud claim.

“Because these findings cannot be reconciled, they reflect a split, non-unanimous jury,” Casamassima said. “Since unanimity is required for liability, the effect of the two inconsistent findings is that the SEC has failed to sustain its claim of securities fraud against Mr. Quan.” He declined to comment further.

Petters is serving a 50-year federal prison sentence after he was convicted in December 2009 of bilking hundreds of investors who thought they were financing short-term transactions involving consumer electronics that Petters said were destined for big-box retailers.

Petters’s Fraud

Quan concealed evidence of Petters’s fraud, including by engaging in $187 million in “round-trip” transactions designed to hide the scheme, the SEC said in its complaint. Quan’s Greenwich, Connecticut-based Acorn Capital Group LLC, ACG II LLC and Stewardship Investment Advisors LLC were co-defendants.

“The SEC filed its complaint against Quan and his firms in March 2011, alleging that he facilitated the Petters fraud and funneled several hundred million dollars of investor money into the scheme,” according to the regulator’s statement yesterday.

“Quan and his firms invested hedge fund assets with Petters while pocketing millions in fees,” the SEC said. He assured investors that their money would be safeguarded in a “lock-box account.” When Petters wasn’t able to make payments on the investments managed by Quan’s funds, Quan hid those defaults from his investors, according to the agency.

Jurors found in favor of the SEC on three of four counts involving one or more of Quan’s businesses.

“We don’t believe there is any inconsistency in the jury’s verdict,” David Glockner, the regional director of the SEC’s Chicago office, said in response to Casamassima’s comments. “The jury found the defendant liable for fraud, and the one charge on which it found against the SEC was narrower and does not impact the verdict. We are pleased with the result.”

The case is U.S. Securities and Exchange Commission v. Quan, 11-cv-00723, U.S. District Court, District of Minnesota (Minneapolis).

--Editors: Peter Blumberg, Michael Hytha