Crown Bank faces a second clawback lawsuit related to its business with convicted Ponzi fraudster Tom Petters.
At issue this time: proceeds from Petters' former residence in Plymouth and from a luxury mountain home in Colorado.
Doug Kelley, the court-appointed lawyer working to recover money for investors and creditors, is seeking to get $2 million back from the Edina bank related to real estate pledges Petters made to the bank the day after federal authorities raided his home and offices in 2008.
The lawsuit, filed Wednesday in U.S. District Court in Minneapolis, asserts that the day after the highly publicized raid, bank executive Kevin Howk went to the Petters corporate headquarters in Minnetonka to discuss the money Petters personally owed the bank. There, Petters granted Crown Bank an interest in two of his properties: a house in Plymouth and a home in Dillon, Colo.
Those transfers occurred after the bank was served a grand jury subpoena for all of its records regarding Petters and Petters Co. Inc. since 2002, according to the lawsuit. Accusing Crown Bank of one count of fraudulent transfer, Kelley contends that it didn't receive the property transfers in good faith and "was on notice" at the time that Petters and his companies were insolvent and implicated in a multibillion-dollar fraud.
A lawyer for Crown Bank said the bank hadn't been served yet, but called the complaint a repeat of the government's unsuccessful effort in Petters' criminal proceedings to get the bank to forfeit the two properties. The bank will seek immediate dismissal, said Christine Lindblad, a lawyer at Oppenheimer Wolff & Donnelly representing the bank.
"Crown Bank has spent significant time and money litigating its rights to these very same properties against the federal government and now the same properties are being pursued for the first time by the government's receiver under a meritless, nearly identical claim," Lindblad said, reading a prepared statement. "In the prior action against the federal government, the federal district court agreed with Crown Bank's position and affirmatively found that Crown Bank 'is a victim of Petters Ponzi scheme.'
"Now that Crown Bank won its case against the government, the receiver wants a second bite at the apple and wants to force this victim to incur additional legal fees," she said.
Kelley has argued that the boutique bank was a key part of the $3.65 billion Ponzi scheme Petters engineered, an assertion the bank strongly disputes. In Petters' swindle, what was supposed to be returns for financing big-box consumer electronics was in reality new investors paying off older ones.
The house in Plymouth, where Petters' former girlfriend Tracy Mixon once lived, is sitting empty and is on the market, Lindblad said, noting that the receiver has not paid property taxes. The Colorado house was sold, and the proceeds are being held in escrow.
U.S. District Judge Richard Kyle ruled in January that the bank didn't have to give up the properties because it didn't realize at the time that they were subject to forfeiture. In an interview, Kelley said the ruling has no bearing on the current clawback lawsuit.
"It is entirely separate from Judge Kyle's findings," Kelley said.
Kelley filed the latest lawsuit as court-appointed receiver for Petters and his companies and it focuses on the bank's dealings with Petters personally. Kelley filed a broader 2010 clawback lawsuit against Crown Bank in bankruptcy court in his capacity as trustee.
First suit seeks $6.1 million
In the earlier lawsuit, Kelley is seeking to recover $6.1 million in loan payments and overdraft payments related to millions of dollars that Petters Co. Inc. (PCI) was allegedly moving in and out of its Crown Bank account.
In court documents in the PCI lawsuit, Kelley described Crown Bank as "an integral part of the Petters Ponzi scheme."
In an interview at the time, bank CEO Peter Dahl insisted that the bank was not a central player in Petters' operation.
"We are not conceding anything and will defend against all of the claims," Lindblad said.
The case is on hold awaiting consolidated orders from U.S. Bankruptcy Judge Gregory Kishel that would impact that case and others, she said.
Crown Bank opened its doors in 2000 and caters to wealthier clients and their businesses. It is one of six banks targeted in the more than 200 clawback lawsuits that Kelley has filed against individuals and organizations he claims benefited from Petters' scheme.
The banks include JPMorgan Chase & Co., from which Kelley is seeking $25 million; Associated Bank based in Green Bay, Wis.; Chicago-based BMO Harris Bank as successor to M&I Bank; Home Federal Savings Bank in Rochester; and Signature Bank in Minnetonka. None of the banks have settled yet.
To date, Kelley has collected $310 million for the bankruptcy estate, including $72 million in clawbacks. The list of clawback targets could grow longer, and existing targets could be on the hook for even more, given a recent court ruling.
Last month, Kishel ruled that clawbacks to recover "false profits" from Petters' investors can go back farther than the normal six-year statue of limitations, up to 13 years from the 2008 bankruptcy filing.
Petters is serving a 50-year sentence in Leavenworth, Kan.
A dozen others have acknowledged guilt or were convicted in nearly five years of criminal investigations related to the Petters saga. The criminal drama largely came to a close with last month's conviction of Twin Cities hedge fund manager James Fry.