A Minnetonka-based hedge fund could be on the hook for up to $5.1 billion in so-called "fraudulent transfers" it received for more than a decade from Petters Co. Inc. (PCI), the vehicle for the $3.65 billion Petters Ponzi scheme.
Petters bankruptcy trustee Doug Kelley is seeking at least $105 million in false profits from Arrowhead Capital Partners and affiliate groups as well as $5.1 billion in principal and interest that was transferred to them for more than a decade.
The lawsuit, filed Tuesday in U.S. Bankruptcy Court, is the latest and largest suit authorized by Kelley to claw back profits paid to certain investors at the expense of other investors who were unaware of the fraud.
In most of the lawsuits, including the Arrowhead suit, Kelley and his attorneys also claim they are entitled to all the money exchanged between an investor and PCI if it can be shown the investor knew, or should have known, the operation was illegal.
In Arrowhead's case, Kelley said Tuesday, investment returns "as high as 70 percent" should have been a clue that something was amiss.
According to the lawsuit, "Defendants knew or should have known that they were benefiting from fraudulent activity, or at a minimum, failed to exercise reasonable due diligence with respect to Petters."
Attempts to reach Arrowhead's founder, James Fry, were unsuccessful.
The lawsuit said Fry first invested with Petters in 1996.
The Petters operation collapsed two years ago. Petters was found guilty on criminal charges and is serving a 50-year prison sentence.
The clawback activities by the trustee are attempts to recover funds for investors and creditors who lost money in the fraud.
David Phelps • 612-673-7269
