The U.S. Trustee's office in Minneapolis has appointed a three-person committee to represent the long line of unsecured creditors claiming Minnesota businessman Tom Petters owes them money.
Petters waits in jail on criminal charges of running what is possibly the largest Ponzi scheme in U.S. history while 10 of his myriad companies wend through bankruptcy court in a consolidated action. Court documents filed in U.S. Bankruptcy Court in Minnesota on Friday show that the official committee of unsecured creditors in the bankruptcies includes James N. Fry, head of a Minnetonka hedge fund listing claims of $76 million, and businessman Paul Taunton, head of Taunton Ventures in Chanhassen, which lists claims of $6.5 million. Acting chairman of the committee is Ronald Peterson, the Chicago-based trustee for five investment funds run by Lancelot Investment Fund of Northbrook, Ill. The Lancelot funds sank $1.5 billion into Petters and have themselves filed for Chapter 7 insolvency.
Such committees are typically appointed quickly in bankruptcies but the Petters case is so complicated it took longer, said James Lodoen, Petters' bankruptcy attorney in Minneapolis. Lodoen estimated there are about 100 unsecured creditors in the combined bankruptcies.
Creditors committees are supposed to investigate the financial affairs of the debtor, safeguard the interests of the group, keep the creditors informed, and in the end, try to divvy up the leftovers. The group will hold its first phone conference today or Sunday, Peterson said. He said it's far too early to tell how much might be left of the money various parties poured into Petters' operations over the years. People running Ponzi schemes often pay off early investors with money from later ones, but some investors let their money ride.
"In a Ponzi scheme you don't find money in a mattress," Peterson said. The unsecured creditors "could be blessed," he said, if the equity Petters bought in Fingerhut Companies, the catalog firm, and Polaroid Corp. remain valuable. Neither of those Petters companies are in bankruptcy.
Fry could not be reached for comment. Taunton said he's not sure what there is for creditors to recover. "That's the unknown here. Nobody knows how deep the hole is," Taunton said. "Nobody even knows where all the assets are even located."
Taunton, known locally for selling his chain of athletic wear stores to Footlocker in the late 1990s, said he first met Petters about 10 years ago at a Bible study. Petters always made his interest payments on time, Taunton said, and there were no problems until he learned about federal agents raiding Petters' Wayzata home and his company headquarters in Minnetonka in late September.
Petters was arrested Oct. 3 but has maintained his innocence. Four of his cohorts, including a Petters executive who blew the whistle, have pleaded guilty in the alleged scheme.
"If it is as it was alleged, that's shocking and incomprehensible," Taunton said. "It just doesn't compute. We're all on the edge of our seats to find where the truth lies."
Jennifer Bjorhus • 612-673-4683