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Continued: GE Capital and Petters-related fund in legal battle

  • Article by: DAVID PHELPS , Star Tribune
  • Last update: August 30, 2014 - 10:29 PM

Connecticut-based GE Capital said it had no responsibility “to disclose its private business dealings” with Petters, whose corporate empire grew from a chain of retail outlet stores to include Sun Country Airlines, Polaroid and mail-order retailer Fingerhut.

“In short, GECC had no knowledge of the multibillion-dollar Petters Ponzi scheme, never joined the so-called ‘conspiracy’ alleged by the trustee, performed no acts or omissions in furtherance of such ‘conspiracy’ and bears no responsibility for the losses occasioned by the Palm Beach Funds’ own criminal, fraudulent and negligent acts,” GE Capital states in its brief containing answers to allegations in the lawsuit.

The criminal reference is to the two fund managers for Palm Beach, Bruce Prevost and David Harrold, and their conduit to Petters, Frank Vennes, Jr., who are currently serving prison sentences on various fraud charges for misleading investors about details of their investment in the Petters operation.

A GE spokesperson said, “Because this is pending litigation, we aren’t going to comment beyond what is in our filing, which directly negates each allegation in the trustee’s only remaining claim.”

The Palm Beach funds, which filed for bankruptcy in 2009, cite internal GE Capital memos, voice mails and testimony presented at Petters’ 2009 criminal trial as evidence of the company’s knowledge of the fraud before its loans were repaid and its credit line with Petters was closed.

When large financial losses occur in a business transaction, it is not unusual for lawsuits to be filed in the hopes of recovering part of the loss.

“A lot of money is at stake here and GE has deep pockets to go after,” said Ted Sampsell-Jones, a professor at William Mitchell College of Law who has followed the Petters case for six years. “When you lose a lot of money you try to find someone to sue and you need someone to sue who has money. Even if it’s a one-in-100 chance, it’s worth the try.”

That strategy worked two years ago for Twin Cities-based trustee Doug Kelley, who handled the Petters corporate bankruptcy. GE Capital agreed to pay $19 million after Kelley argued that GE Capital “knew or should have known” about the fraudulent scheme. The $19 million represented “false profits” collected by the lender, Kelley asserted.

In that case, while GE Capital agreed to the $19 million payment, it denied “any and all liability.”

David Phelps • 612-673-7269

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