The receiver rounding up assets from Tom Petters' $3.8 billion Ponzi scheme filed a federal lawsuit in Minneapolis Wednesday in an attempt to force J.P. Morgan Chase to return $25 million in cash and securities the bank confiscated from Petters' personal investment accounts as federal investigators swept in to shut down the fraud two years ago.
The New York bank had a long, lucrative association with Petters, receiver Doug Kelley noted in his 44-page lawsuit. Petters had numerous investment accounts at the bank from 2001 through 2008, into which he had deposited $83 million in proceeds from the Ponzi scheme over time, the suit says.
Kelley alleges that J.P. Morgan and its affiliates turned a blind eye to "numerous red flags" as they conducted due diligence related to the $426 million sale of Polaroid Corp. to Petters in 2005. The bank and its affiliates were conflicted, the suit alleges, because they collected more than $240 million on the sale and from related charges as they facilitated a leveraged buyout that saddled Polaroid with debts it could never repay.
In addition to the bank, the suit names as defendants:
•Jacques Nasser, a former CEO of Ford Motor Co. He was a managing director of former Polaroid owner One Equity Partners -- which J.P. Morgan owns and operates -- and a former director and chairman of Polaroid Holding Co. Nasser was paid more than $12.8 million in Ponzi proceeds, the suit says.
•Rick Lazio, a four-term Republican member of Congress from New York who was a J.P. Morgan executive vice president and a director of Polaroid Holding Co. Lazio, who ran unsuccessfully against Hillary Clinton for the U.S. Senate in 2000, received more than $500,000 in Ponzi proceeds, the suit says.
•Lee Gardner, Charles Auster and James Koven, managing directors of One Equity and directors of Polaroid Holding Co. Gardner received more than $200,000, Auster received more than $900,000, and Koven received more than $50,000 of the Ponzi proceeds, the suit says.
•J. Michael Pocock, a former director, CEO and president of Polaroid Holding Co. He received more than $8.5 million in Ponzi proceeds, the suit says.
•William Flaherty, a former executive vice president and chief financial officer of Polaroid Holding Co. He received more than $5.34 million in Ponzi proceeds, the suit says.
•Ira Parker, former chief legal officer for Polaroid Holding Co., who allegedly received more than $1.56 million in Ponzi proceeds.
Kelley, also a trustee for the bankrupt Petters companies, filed a parallel "clawback" action in U.S. Bankruptcy Court in October against the defendants. The new lawsuit, filed in U.S. District Court, relates to Kelley's role as receiver for Petters, who has not filed for bankruptcy protection.
The suit alleges that when J.P. Morgan learned about federal raids on Petters' offices on Sept. 24, 2008, it declared Petters Group Worldwide's outstanding credit line at the bank in default and seized Petters' personal investment accounts. The bank began liquidating the accounts within the week, claiming it was owed $20 million from Petters Group Worldwide's line of credit, which Petters personally guaranteed.
Kelley said in an interview Wednesday he has tried to get the bank to return the proceeds -- all of which came from Ponzi proceeds -- but it has refused to do so.
The lawsuit cites a litany of warning signs it says the defendants missed or ignored that should have tipped them off that Petters was running a fraud.
Among those signs: evasive e-mails from "the Petters team" in response to due diligence inquiries; a lack of tax returns and audited financial statements for Petters Co. Inc., "the central Ponzi scheme business that funded most of the Polaroid acquisition"; high interest payments Petters was making on loans to his supposedly lucrative businesses; revelations that Petters had 11 court judgments filed against him; and Petters' previous criminal records in Colorado and Minnesota involving dishonesty and theft.
The suit also says the "convoluted" way the bank and its affiliates structured the sale of Polaroid to Petters indicates it had concerns about Petters' funding sources.
None of the defendants has filed a response yet to the earlier, parallel lawsuit filed in bankruptcy court.
Some $36 billion flowed through the Petters Ponzi scheme during its existence over parts of two decades, according to a recent report from PricewaterhouseCoopers. Petters, who was convicted on 20 counts of fraud, money laundering and conspiracy late last year, is serving a 50-year sentence at the federal prison in Leavenworth.
Dan Browning • 612-673-4493