Petters consultant in N.Y. is target of $804,000 clawback

  • Article by: DAVID PHELPS , Star Tribune
  • Updated: June 12, 2012 - 9:21 PM

Bankruptcy trustee alleges that attorney Paul Traub was paid to help Tom Petters attract investors to a $3.65 billion Ponzi scheme.

Paul Traub was always a kind of mystery man in the Tom Petters scheme.

His public involvement was limited to a couple of photographs of him at charitable events involving Petters and the foundation for Petters' late son.

But privately, it has now been alleged, the New York attorney was a beacon for Petters in the investment community, giving the former Wayzata businessman credibility and cachet among potential and actual investors who took part in what was a $3.65 billion Ponzi scheme.

Traub was named in a lawsuit filed late last week in U.S. District Court in Minneapolis seeking to recover $804,000 that he allegedly received from Petters for providing "consulting services in assessment of new business opportunities" and "the capital needs of the [Petters] organization."

The suit is the latest of more than 200 lawsuits filed on behalf of the Petters corporate bankruptcy estate by trustee Doug Kelley seeking to "claw back" ill-gotten gains from the decade-long fraud. Kelley also is the federal receiver for Petters' personal estate, which launched the Traub complaint.

Traub, who specializes in bankruptcy and business reorganization opportunities for Gordon Brothers Group, did not return a telephone call seeking comment.

His attorney, Thomas Heffelfinger of the Minneapolis firm Best & Flanagan, said his client denies the allegations.

"We will require that he [Kelley] try and prove the case, which he cannot do," Heffelfinger said in a telephone interview Tuesday.

Kelley also is seeking another $1.65 million from Traub that he received from Petters Group Worldwide in a separate bankruptcy lawsuit.

'Essential air of success'

In the most recent suit, Kelley alleges that Traub was one of a number of individuals Petters used to "create the essential air of success and wealth required to sustain the fraud as well as the expertise to maintain it."

The lawsuit says Traub was paid "an astonishing" $125,000 a month as a consultant to Petters and received $2.46 million "directly, and sometimes secretly" from 2005 to 2008.

"In essence, Traub gave Petters business credibility and access to new potential victims for his fraudulent schemes," the lawsuit states.

Traub promoted Petters as a skilled businessman, according to the suit and "assist[ed] Tom by acting as a 'filter' between the portfolio companies, Petters personnel and third parties."

"Traub possessed considerable control over Petters," the lawsuit states.

At about the same time he was helping Petters "leverage his Rolodex to create new opportunities," according to the suit, Traub was a partner in the bankruptcy and reorganization firm Traub, Bonacquist & Fox, which ran into controversy in its representation of creditors in the eToys.com bankruptcy amid conflict-of-interest claims.

In 2006, Traub's firm was acquired by Dreier LLP, a New York firm that ultimately dissolved when partner Marc Dreier was arrested for allegedly attempting to sell fictitious promissory notes.

Petters is serving a 50-year prison sentence for his role in an operation that attracted investors who thought their funds were purchasing consumer electronic goods for sale to big-box retailers. But no such goods existed, and investments were used to pay off other investors.

The Ponzi scheme collapsed in September 2008, after federal agents raided the Petters business operation in Minnetonka acting on insider information provided by onetime Petters confidante and co-conspirator Deanna Coleman.

David Phelps • 612-673-7269

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