Palm Beach funds bankrupt after losing money in alleged Petters scheme

By Caroline Salls

Pittsburgh, Dec. 1 - Palm Beach Finance Partners, LP and Palm Beach Finance Partners II, LP filed for Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the Southern District of Florida after they allegedly lost funds in a Ponzi scheme.

According to a statement filed by Palm Beach chief restructuring officer Kenneth A. Welt, the funds invested "substantial amounts of monies" through their general partners with Petters Co., Inc., which is owned and controlled by Thomas Petters.

As previously reported, Petters is on trial in Minnesota on charges of mail and wire fraud, money laundering and conspiracy in connection with the alleged fraudulent scheme.

Welt said monies solicited and obtained by the Palm Beach funds and others from third parties "were invested in (and lost through) what appears to be a massive Ponzi scheme undertaken by Mr. Petters and others working with him."

Specifically, Welt said the funds invested a combined $1.1 billion in Petters Capital via the purchase of secured, short-term promissory notes.

The funds' CRO said the bankruptcy cases were filed in part to prosecute claims against third parties.

According to court documents, Palm Beach Finance has $100 million to $500 million in assets and $10 million to $50 million in debt, while Palm Beach II has $500 million to $1 billion in both assets and debt.

Palm Beach II's largest unsecured creditors include Palm Beach Offshore joint liquidators Geoffrey Varga and Neil Morris, with a $696.49 million pending civil litigation claim, and Strategic Stable Return Fund II, LP, Strategic Stable Return Fund (ID), LP and SSR Capital Partners, LP, with a $24 million pending civil litigation claim.

The Palm Beach funds are based in Palm Beach Gardens, Fla. The Chapter 11 cases are being jointly administered under the case number 09-36379.

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