It was the biggest donation ever received by the Retreat -- $1 million. They spent it building their main campus, housed in a former nuns' retreat on a shady tract in Wayzata's Big Woods.

Now they're being asked to give the money back.

"We're a little nonprofit," said John Curtiss, president of the Retreat. A $1 million hit would "break us."

The Retreat, which treats addicts at a fraction of the cost of big centers, is one of the latest groups caught up in the court-directed cleanup after the collapse of Petters' former business empire, which once included such well-known names as Polaroid and Sun Country Airlines. Petters was convicted in December on fraud and money laundering charges in a $3.65 billion Ponzi scheme and sentenced to 50 years in prison.

His former investors and other creditors are now looking to get back some of what they're owed. Over the years, the once-high-flying businessman gave millions of dollars to colleges and nonprofits around the country. In recent months, a receiver appointed by the court has sent more than 100 "clawback" letters to nonprofits that received money.

Most were organizations larger than the Retreat and received far smaller amounts.

"A lot [of the donations] were in the category of $5,000 to $25,000," said John Pratt, executive director of the Minnesota Council of Nonprofits. In terms of potential impact to the Retreat, "they're kind of a worst case."

'Fiduciary responsibility'

Officials at the Retreat received their letter last week, essentially turning what they thought was a giant windfall into a millstone. Doug Kelley, the court-appointed receiver, said he did not relish sending out the missives.

"They accepted the money in good faith and used it for good work," Kelley said. "But I have a fiduciary responsibility to creditors to ask for the money back. It was not Tom Petters' money in the first place."

Kelley said he would "bend over backwards" to work out payment plans, saying he has no interest in putting the groups out of business.

He noted that five checks from other nonprofits arrived in his offices earlier this week but for amounts considerably less than $1 million. Kelley said he has sent nearly 100 "demand letters" to nonprofits for the return of contributions from Petters totaling $5.3 million.

Kelley did receive larger clawbacks earlier. Miami University in Ohio and the Order of St. Benedict in Collegeville, Minn., returned $5.2 and $2 million, respectively. Kelley is also seeking clawbacks from individuals and hedge funds that invested early with Petters and were paid "phantom profits" from the funds of later investors, which is the backbone of a Ponzi scheme.

A court-appointed receiver has the legal right to seize an asset from a nonprofit, or order a bank account frozen, said Heidi Christianson, a St. Paul lawyer who works with nonprofits.

Fighting addiction

The Retreat was started 12 years ago by a small group of people frustrated by the rising cost of treating addiction. Led by John Curtiss, a former Hazelden Foundation executive, the group purposefully returned to the roots of the treatment movement: a full month's residence, surrender to a higher power and support from a community of former addicts.

By forgoing medical staff and relying on volunteers, they slashed the cost of a month's treatment to $4,400, about one-seventh the cost at established centers such as Hazelden. The center now treats 1,700 to 1,900 people a year, many subsidized by donations.

On any given day, volunteers show up to lead chapel services, drive patients, or teach the "Big Book," the bible of Alcoholics Anonymous. Volunteers include former U.S. Rep. Jim Ramstad and Andrew Zimmern, host of the Travel Channel's "Bizarre Foods."

In the fall of 2004, the organization's board approved a $6.225 million capital campaign.

Unexpected gift

Dr. Peter Vogt, a Wayzata plastic surgeon, headed the capital drive. Vogt had known Petters and his family for more than two decades, back when Petters "had nothing to his name." He said patient confidentiality forbade him from discussing how they'd met.

Both had also been treated at Hazelden, Vogt said: "Our connection was through recovery." He noted that "Tom was always very sensitive to people in need, people in distress." In his heyday, Petters threw lavish fundraisers for his family foundations.

Vogt invited his old friend to tour the Retreat.

Petters came over on a Saturday morning and met with John Curtiss, Vogt and another Retreat official. "He walked around for an hour, an hour and a half, and had a good look at what we're doing here," Vogt said.

Vogt hoped Petters might donate maybe $5,000. A few days later, Petters called to give $1 million.

The contribution dwarfed all other donations in the Retreat's history. The next single largest donation was $300,000.

At the time, the Retreat had just moved into its current facility in Wayzata. Petters' money went toward helping the Retreat purchase and renovate the building.

Vogt said he had no inkling of trouble afoot until Petters was arrested in 2008. "When the news hit the air, I was as shocked as anybody else," he said. "I did not see that coming."

Tough climate

The clawbacks are coming at a bad time for nonprofits.

"In these tough times, every dollar makes a difference," said William Moyers, who heads fundraising efforts at Hazelden Foundation. Hazelden too got a letter from Doug Kelley last week and is in the process of returning a $5,000 donation from Petters.

"Fortunately, we are a large nonprofit," Moyers said, but "this is a debit against Hazelden's mission."

Hazelden raises about $7 million in donations each year.

For the Retreat, repayment is pretty much out of the question. "We don't have that sort of money," Curtiss said. "The money we have is other donors' money."

Curtiss said the organization is consulting lawyers on how to proceed. Perhaps there was some untainted money along with the tainted money, he wonders, hopefully. Whatever the case, "we're going to end up doing the right thing," he said.

The hard part is the nonprofits had no reason to suspect the fraud, said Pratt of the Minnesota Council of Nonprofits. "These organizations are truly innocent victims," he said.

Chen May Yee • 612-673-7434 • mychen@startribune.com

David Phelps • 612-673-7269 • dphelps@startribune.com