Two hedge funds that were major investors in the Ponzi scheme of former Wayzata businessman Tom Petters have agreed that they are liable for $322 million in so-called "false profits."

Whether the Westford and Epsilon funds have the financial wherewithal to pay that amount is unclear, however.

The settlement amount, which is not due until 2020, would go to the Petters corporate bankruptcy estate for eventual distribution to creditors hurt by the $3.65 billion scandal.

"I'm not expecting a check to hit my bank account anytime soon," bankruptcy trustee Doug Kelley said.

If approved by Chief Bankruptcy Judge Gregory Kishel, the settlement would be the largest "clawback" amount obtained by bankruptcy trustee since he filed more than 200 lawsuits four years ago seeking proceeds from the fraudulent operation.

The settlement was disclosed in documents filed Thursday in U.S. Bankruptcy Court in St. Paul. An Oct. 28 hearing has been requested before Kishel for consideration of the agreement.

The settlement calls for continued financial disclosures from the funds and fund manager, Steven Stevanovich, and allows Kelley to withdraw from the settlement if there are material changes in the financial condition of the defendants.

The settlement was hammered out in a series of mediation hearings before retired Hennepin County District Judge Richard Solum, according to court documents.

Both parties said they agreed to a settlement to avoid "the expense, delay and uncertainty of continued litigation."

Kelley's initial clawback lawsuit against Westford and Epsilon sought as much as $3.2 billion from the funds, representing the total amount of funds transferred between the hedge funds and Petters Co. Inc. (PCI) between 2001 and 2006.

The $322 million amount represents the profit the funds made above their initial investments.

PCI was the conduit for a Ponzi scheme that was based on the purported sale of consumer electronic goods to big-box retailers. But the sales were fictitious and money from new investors was used to pay off old investors at a profit to them.

The latest bankruptcy documents state that Stevanovich was "unaware of any fraud being perpetrated by Petters."

Tobias Keller, the attorney for Stevanovich and the hedge funds said in a statement to the Star Tribune, "We are happy that this is behind us.

"Mr. Stevanovich acted in a principled manner to resolve this in a way that is fair to all parties. He will continue to manage the defendant funds along with his many other funds that were not involved in lending to Petters," Keller said.

Epsilon and Westford were feeder funds that took investments from others and then invested with Petters. Epsilon was based in Florida and Westford was registered in the Cayman Islands.

Kelley said the settlement allows him to seek repayments from investors in the Stevanovich funds.

"We now have a line of sight that allows us to get to individual investors who are scattered around the world," Kelley said.

The funds were given until 2020 to repay the bankruptcy trustee to give Stevanovich time to "complete its [investment] strategy with its most valuable assets. The settlement requires the funds to pay a 4 percent per year interest rate between now and the payoff date.

The settlement document notes that two employees of Stevanovich were the main "relationship" contacts with the Petters operation and that after they left, the Stevanovich funds made fewer and fewer investments with Petters.

Petters is serving a 50-year federal prison sentence in the fraud.

David Phelps • 612-673-7269