Clawback suit seeks more than $3 billion of Ponzi scheme cash

A Chicago hedge fund manager and philanthropist is the latest subject of clawback litigation in the aftermath of the collapsed Tom Petters Ponzi scheme.

The trustee in the Petters bankruptcy case is seeking at least $323 million in "false profits" from Steve Stevanovich and his Epsilon and Westford hedge funds, and as much as $3.2 billion in total transfers between the funds and Petters Co. Inc.

Stevanovich "became exceptionally wealthy" through profits from his "active and direct involvement" in the Petters scheme and lived an "extravagant lifestyle, including maintaining a mansion in Montreux, Switzerland," said the lawsuit filed Friday in U.S. Bankruptcy Court.

In a statement Sunday, an attorney for Stevanovich said the assertion that he know about the fraudulent activity in the Ponzi scheme "is false in each and every respect."

The statement, from Seattle attorney Jay Biagi, called Kelley's financial claim "overreaching" and it would "damage innocent investors."

"Like regulators and so many other victims of Petters, we had absolutely no indication that Petters was engaged in fraud," the statement said.

The lawsuit identifies Stevanovich as a member of the University of Chicago Board of Trustees, where he earned a bachelor's degree in economics in 1985 and an M.B.A. five years later.

The university declined to comment on the matter.

Epsilon and Westford are described in the lawsuit as feeder funds that took investments from others and then invested with Petters. Westford was an offshore fund registered in the Cayman Islands.

A team of attorneys operating on behalf of bankruptcy trustee Doug Kelley has filed more than 100 lawsuits in recent weeks seeking the return of allegedly tainted money obtained by individuals, employees and institutions who had dealings with Petters, who is serving a 50-year sentence in the Leavenworth, Kan., federal prison for his role in the fraud.

Only three of the lawsuits are for $100 million or more. Some are seeking as little as $25,000.

The suits allege that the "false profits" actually were funds from other investors who put money into the scheme later. Kelley contends that if it can be shown that early investors knew about the fraud or should have known, then he can go after the full amount of money -- principal and interest -- exchanged between them and Petters.