Hedge fund sues Petters' former law firm

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: February 7, 2012 - 10:48 PM

Suit against Fredrikson & Byron is the latest in a string of legal actions by Ritchie Capital Management.

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Tom Petters

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The role of the Minneapolis law firm Fredrikson & Byron in the business affairs of convicted businessman Tom Petters is under scrutiny.

A lawsuit filed in U.S. District Court in Minneapolis alleges that the firm "materially aided" Petters criminal enterprise over a 10-year period by providing him with legal assistance.

The firm vigorously denied the allegations Tuesday and in a statement to the Star Tribune said the suit "has no merit and will be dismissed because it does not describe a single fact that would support a claim that our law firm did anything wrong or had any knowledge whatsoever of the Petters fraud."

The lawsuit, by Ritchie Capital Management, is the latest in a long line of so-far-unsuccessful lawsuits brought on behalf of hedge fund manager Thane Ritchie and his array of funds.

It is believed to be the first, however, linking the Fredrikson law firm to Petters' criminal activities, although Petters' past business dealings with the firm are public knowledge.

Ritchie claims he made a good-faith attempt to purchase Polaroid from Petters in 2008 with a loan of more than $150 million. The lawsuit asserts that attorneys for Fredrikson & Byron "substantially assisted or encouraged" other Petters associates in making that loan worthless.

The other defendants in the lawsuit, including convicted whistleblower Deanna Coleman, are accused of antitrust violations. This latest lawsuit is similar to another Ritchie suit involving the Polaroid transaction that was dismissed last week.

Ted Sampsell-Jones, a professor at the William Mitchell College of Law in St. Paul, said it is unusual for a law firm to be sued by a third party for the conduct of a client.

"It's pretty rare, especially for an established firm like Fredrikson," Sampsell-Jones said. "It's not a very easy thing to prove. You have to show that Fredrikson knew something fraudulent was going on, and it's hard to show that."

Ritchie invested with Petters during the last stages of a decade-long Ponzi scheme where losses totaled $3.65 billion after the scheme collapsed in 2008. Investors thought they were paying for consumer electronic goods to be sold to big-box investors when no such goods existed.

Ritchie has aggressively used the courts in attempts to recoup his losses with Petters.

Early on in the Petters proceedings, Ritchie unsuccessfully attempted to have Doug Kelley removed as the Petters bankruptcy trustee and objected to his role as receiver in the district court civil case.

Ritchie also was one of the sources of funding behind a documentary on the Petters case called "The Second Fraud." It asserted that Kelley and others overstepped their roles in overseeing the personal and corporate estates of Petters, who currently is serving a 50-year sentence in federal prison on fraud, money laundering and conspiracy charges.

David Phelps • 612-673-7269

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