Nothing about the Ponzi odyssey launched by Tom Petters more than a decade ago has been small, including Tuesday's hearing on how his bankruptcy trustee plans to recover $1.745 billion from investors in the fraud.
A sea of dark-suited lawyers swamped a federal courtroom in St. Paul to hear how trustee Doug Kelley intends to "claw back" the so-called phantom profits from the illicit Petters operation in which money from newer investors was used to repay notes held by older investors.
The process already faces substantial legal opposition.
"I recognize this is a very difficult situation," Kelley said, standing before U.S. Bankruptcy Judge Gregory Kishel. "I know many in this room feel they are victims. It is my goal to treat all involved in the fraud in a fair and equitable manner."
Kelley said he and his legal team have filed 202 civil lawsuits seeking $1.745 billion.
Of that amount, he is seeking $1.4 billion from investors with Petters, $61 million from six banks, $44 million from employees and "strategic partners" of Petters that were paid out in the form of bonuses and incentives as well as several million from charitable organizations that received philanthropic donations from the former Wayzata businessman.
Tuesday's hearing was called to set up procedures and a timeline for proceeding with the lawsuits, which could take months before going to trial. There also is a mediation option and an option for those who have the documentation to prove they do not have the means to repay the funds.
"I am in a settlement mode," Kelley told the court.
Petters is in year two of a 50-year prison sentence after being found guilty on 20 counts of fraud, money laundering and conspiracy in December 2009.
A recent audit report by PwC (formerly PricewaterhouseCoopers) totaled the financial loss in the Ponzi scheme at $3.8 billion. All in all, the audit said, there was $41 billion in fraudulent transfers over a 13-year period.
Petters and his associates told investors that they were using those investments to purchase consumer electronic goods for resale to big-box retailers when in fact new investments were being used to fulfill commitments to old investors.
David Phelps • 612-673-7269
