Trustee asks Minnesota Teen Challenge to give back $2.3 million; governor ponders bill limiting such clawbacks.
Minnesota Teen Challenge, a nonprofit addiction counseling and assistance program, has been asked to return more than $2.3 million it received in contributions and donations from the personal and corporate estates of former Wayzata businessman Tom Petters.
In lawsuits filed in federal district court and U.S. Bankruptcy Court, receiver and trustee Doug Kelley asserts the donations were actually proceeds from the Petters-run Ponzi scheme and should be returned to reimburse investors and creditors who lost money when the $3.65 billion fraud collapsed in 2008.
The lawsuit was filed late last week just as the Minnesota House approved a bill prohibiting such clawback actions involving charities and religious organizations. That bill now goes to Gov. Mark Dayton for his consideration. He has until midnight Tuesday to act on the legislation.
Separately, Kelley filed an additional clawback lawsuit on Monday seeking $2 million from the College of St. Benedict that it received in a series of donations from a Petters-run foundation from 2003 through 2006.
Officials for Teen Challenge declined to comment on the litigation. Teen Challenge was a favorite charity of Petters associate Frank Vennes, who is awaiting trial for his role in the Ponzi scheme.
The College of St. Benedict said in a statement that it "accepted and spent the donations in good faith from 2003 to 2006 to further its mission. We are gratified that a bill recently passed by the 2012 Minnesota Legislature and awaiting the governor's signature recognizes the position of nonprofits in such situations. We expect the legislation will resolve the matter outside of this litigation."
In the state legislative debate over clawbacks, nonprofit organizations and supporters argue that they often have already spent contributions or donations by the time it's discovered that the funds were from illegal activities. The new law would exempt organizations from returning tainted funds after the expiration of a two-year statute of limitations.
Kelley argued that Petters and his companies made the contributions with the funds of others to enhance his public image and keep the $3.65 billion fraud going with new investors.
Because the proposed legislation is retroactive, Kelley estimates he could be unable to collect between $200 million and $450 million in claims involving nonprofits in Minnesota.
Petters, who is in prison on fraud, conspiracy and money laundering convictions, ran a decade-long operation with affiliates who told investors they were buying electronic consumer goods for resale to big-box retailers when no goods actually existed.
David Phelps • 612-673-7269