The Tom Petters fraud case

Receiver seeks two Petters condo project foreclosures

Creditors fret as Tom Petters' companies founder; Polaroid suffers "substantial losses"and may have to downsize.

Court-appointed receiver Doug Kelley continues dismantling the menagerie of businessman Tom Petters, recommending now that two condo developments Petters owns go into voluntary foreclosure.

Petters owes Home Federal Savings Bank in Rochester more than $5.5 million on the two projects: the Village on the Cannon in Northfield, Minn., and University Village of Winona in Winona, Minn. The unfinished portions of the condo developments are now worth only about $3.5 million, according to court documents Kelley filed Tuesday in U.S. District Court in Minneapolis.

The housing developments are the latest of Petters' assets to be sold, closed, put into bankruptcy or, in this case, handed over to the bank as authorities pursue their investment fraud case against the well-known Minnesota businessman. Petters, 51, of Wayzata, has pleaded not guilty to a 20-count indictment alleging he ran a $3.5 billion Ponzi scheme for more than a decade and wiped out investors across the country and overseas. U.S. District Judge Ann Montgomery must approve the foreclosure motion for it to go forward.

The motion didn't surprise Jerry Mohrig, president of the Village on the Cannon's homeowners association and a retired Carleton College chemistry professor. About 16 of the project's 46 units sit empty, he said. Nonetheless, residents are "making the best of it," he said.

"We're going to survive," Mohrig said. "We have great community spirit."

In other Petters developments Tuesday, creditors in the combined bankruptcies of Petters Group Worldwide and Petters Company Inc. got little reassurance about the fate of Polaroid Corp., one of the few remaining Petters companies with value. Lenders who lost billions in the collapse of the Petters organization hope that a functioning company with saleable products and assets such as Polaroid can be used to mitigate their losses.

But Kelley told the unsecured creditors gathered at a hearing in the U.S. Trustee's office in Minneapolis Tuesday that he and investment banker Houlihan Lokey are still figuring out how much Polaroid, known for cameras and consumer electronics, is worth and how to get the most out of its assets. That could include selling the company.

"Houlihan Lokey is using its best business judgment to determine the status of Polaroid, evaluate what it is worth and determine the best way to put it on the market, if you put it on the market," Kelley told the group.

However, Kelley told creditors that Polaroid has experienced "substantial losses" during the year despite obtaining a $21 million settlement from a patent-infringement lawsuit.

One of Kelley's attorneys, Daryle Uphoff, said Polaroid has sufficient cash to last the next six to eight weeks and possibly longer depending on what is done with the company, including downsizing operations. "It cannot continue in the operation mode that it has been in the last year," Uphoff said.

In a third development, U.S. Bankruptcy Judge Gregory Kishel granted a motion to appoint a trustee to oversee the Petters businesses as they reorganize. The U.S. Trustee's office, part of the Justice Department, appoints trustees in certain Chapter 11 business reorganizations to manage the operations of the debtor. It said it would file an appointment for Kishel's approval by Dec. 24.

Jennifer Bjorhus • 612-673-4683 David Phelps • 612-673-7269

  • about this series

  • The Star Tribune's coverage of the federal fraud case against entrepreneur Tom Petters and the struggles of Petters-owned Sun Country Airlines.
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