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SEC Demands $42 Million in Ponzi Profits

MINNEAPOLIS (CN) - The SEC claims Arrowhead Capital Management and its president James Fry made $42 million from Thomas Petters' multibillion-dollar Ponzi scheme, and it wants the money back.

Petters was sentenced to 50 years in prison for his Petters Group Ponzi scheme based, which was based on selling notes for fake receivables from big-box retailers.

The SEC claims that Fry and his investment management firm, Arrowhead, funneled $600 million into Petters' notes - virtually all of the money they raised from investors in 10 years, from 1998 to 2008.

"During the same period, Fry and Arrowhead LLC earned more than $42 million in fees under their agreements with the Funds. Fry and Palm were paid salaries and other compensation from money invested in the Funds," according to the complaint.

Arrowhead is an unregistered investment adviser. Fry was its founder and president. The third defendant, Michelle Palm, worked for Fry as managing director of finance from early 2008 until August 2009, according to the complaint.

The SEC seeks disgorgement, injunctions and penalties.

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