Edina Woman Linked to $3.65 Billion Ponzi Scheme Pleads Guilty

A 43-year-old Edina woman pleaded guilty Friday, April 8, in federal court to playing a role in a $3.65 billion Ponzi scheme.

Michelle Webster Palm admitted she aided and abetted criminal activity by concealing information from investors regarding the purchase and sale of securities from September 2007 through September 24, 2008. She entered a guilty plea to one count of securities fraud and one count of providing false statements to a government agent before U.S. District Court Judge Richard Kyle.

U.S. Attorney B. Todd Jones said Palm is one example of numerous financial industry executives being prosecuted in Minnesota.

"This office and our investigative partners have worked diligently to ensure the citizens of Minneosta that those who financially defraud others are held criminally responsible," Jones said.

Palm served as vice president of special operations and later as managing director of finance with Arrowhead Management, which operated three hedge funds that almost exclusively invested in Petters Company, Inc. (PCI) promissory notes. Tom Petters, who owned and operated PCI, was sentenced to 50 years in federal prison in April 2010 for heading up a $3.65 billion Ponzi scheme.

Palm admitted in court she and others hid information from investors that millions of dollars in PCI notes held by Arrowhead Management were on the verge of going into default. During the life of the hedge fund, investors reportedly contributed more than $387 million, with Arrowhead Management obtaining approximately $35 million in fees from the fund.

She faces a potential maximum penalty of five years in prison for each charge. Palm will be sentenced at a future hearing, which has yet to be scheduled.