business

VISIONBank has filed a lawsuit alleging that Minnwest Bank Metro blindsided it in a $2.47 million deal involving accused swindler Tom Petters and Michael O'Shaughnessy, a business partner and former CEO of Polaroid Corp.

The small North Dakota bank says in its lawsuit that Minnwest, which operates several banks in Minnesota, passed off a bad loan in March 2008, falsely representing that it had binding personal guarantees from both Petters and O'Shaughnessy. The lawsuit was filed last month in Hennepin County District Court; Minnwest filed papers Wednesday seeking to move the case to federal court.

VISIONBank, based in Fargo, has assets of $131 million, according to a March 31 report to federal authorities.

According to its lawsuit, VISIONBank agreed to acquire 85 percent of a loan Minnwest had made in February 2006 to T&M Properties -- a 50-50 arrangement between Petters and O'Shaughnessy -- which had an outstanding balance at the time of $2,470,589. The money was used to buy nine condominium units in the Cloud 9 Sky Flats in Minnetonka, which had leased them to Petters Consumer Brands, now known as the Polaroid Corp. The condos were to be used by employees visiting on business, but they've been empty since January.

VISIONBank alleges that Minnwest stalled on its requests to supply various loan documents until after the deal closed. For instance, the bank says it didn't receive copies of the personal guarantees for Petters and O'Shaughnessy until July 2008. And when it got the guarantees it discovered that they had been executed by Petters' accountant, James Wehmhoff, who signed as their attorney-in-fact. None of the "customary loan documents" indicated that the guarantees had been executed by a power of attorney, the suit says.

VISIONBank says that on or about Oct. 1 -- shortly after Petters' offices and home had been raided by federal authorities in connection with an alleged $3.5 billion Ponzi scheme -- O'Shaughnessy notified Minnwest that he didn't recall guaranteeing payment of the T&M Properties loan.

Petters was arrested two days later and remains in federal custody pending trial on conspiracy, fraud and money laundering charges. Several of Petters' associates have pleaded guilty in the case; Wehmhoff pleaded guilty to tax charges.

O'Shaughnessy, 42, of Eden Prairie, has not been charged in connection with the alleged investment fraud. He could not be reached Wednesday for comment on the lawsuit.

O'Shaughnessy's lawyer, Raymond Faricy III, wrote to Minnwest Bank on Oct. 22 and said that although T&M Properties was current on the condominium loan, "To be frank, the prospects for the company are bleak."

Faricy said Polaroid had informed him that it was likely going to break the lease or seek to escape it in bankruptcy. Polaroid Corp. filed for Chapter 11 protection Dec. 18. In April, it asked the judge to let it escape the lease. Polaroid has been sold. Faricy said T&M Properties "recognizes that the bank may be forced to foreclose on the mortgages at some point."

Faricy also said the note's guarantee was unenforceable against O'Shaughnessy personally because he did not sign it or authorize anyone to sign it for him.

VISIONBank says that when Minnwest Bank closed on the deal, the loan was in default and the personal guarantees of Petters and O'Shaughnessy "were executed by a power of attorney who did not have authority under Minnesota statutory law."

Dan Browning • 612-673-4493