Polaroid Corp, which is on the verge of being sold through an auction in bankruptcy court, was acquired by Wayzata businessman Tom Petters substantially with proceeds he allegedly derived from a Ponzi scheme he ran, according to the court-appointed receiver managing much of the Petters estate.
Doug Kelley said in an affidavit filed in U.S. District Court on Monday that government authorities have informed him that Petters financed his $426 million purchase of Polaroid in 2005 with money he fraudulently obtained through his financing entity, Petters Company Inc. (PCI).
Funds from PCI also were used to finance other business transactions for his Minnetonka-based holding company, Petters Group Worldwide, Kelley said.
"The government advised me that proceeds of the fraud perpetrated in large part through PCI were used by PGW for various purposes, including the purchase of Polaroid in 2005," Kelley said in his affidavit. He also said that the forensic accountants he hired have determined that "virtually every dollar" used in the Polaroid purchase came from PCI's investors.
Kelley had been the receiver for both PCI and PGW, a role that technically ceased with his appointment as trustee for the companies in bankruptcy court.
His statement was filed with a motion by the U.S. attorney's office opposing an effort by a Petters creditor to get the receivership lifted for PGW, which owns Polaroid Corp., on the grounds that PGW's assets are clean.
Ritchie Capital Management has unsuccessfully challenged Kelley's authority to dispose of assets three previous times. Ritchie's latest motion will be argued Friday before Judge Ann Montgomery. Ritchie wants a priority position in the disbursement of assets on the assertion that its investments and loans to Petters were to PGW rather than to PCI.
Petters has pleaded not guilty to fraud charges and is facing a trial this year.
Petters' lawyers can't quit
On a related matter, the judge who will preside over the trial, Richard Kyle, ruled formally Monday that attorneys for Petters could not withdraw from the case despite their concerns about being paid in the event that he is convicted. Kyle had strongly suggested that he would rule that way during a hearing last week.
"At bottom, the delay engendered by permitting counsel to withdraw at this late stage, given the amount of time and effort already invested by them, would harm the administration of justice and cannot be permitted," Kyle wrote in a 14-page order.
Defense attorneys Jon Hopeman and Paul Engh asked to withdraw from the case after government attorneys raised concerns about the amount of money being charged by the attorneys to the Petters estate. Hopeman and Engh said they have not been paid for work done this year and are concerned that the government could make them forfeit their fees for possible victim restitution.
Separately, the Petters estate became $99,000 richer Monday when Judge Montgomery approved the sale of his 2004 Coronet boat for $110,000, less a commission of $11,000.
David Phelps • 612-673-7269