Petters victims will start getting money soon

At long last, the victims of Tom Petters' epic Ponzi scheme can count on receiving a check.

In the next seven to 10 days, $172 million that has been collected by liquidating the property of Petters and his key associates will start flowing, according to trustee Doug Kelley, who oversaw the eight-year bankruptcy of Petters' business empire.

U.S. Bankruptcy Judge Gregory Kishel, who is scheduled to retire from the federal bench by the end of May, approved Kelley's reorganization plan late last week. The plan was backed by 94 percent of Petters' creditors.

The scam, which earned Petters a 50-year prison term, collapsed in September 2008 when federal agents launched a surprise raid on the Minnetonka headquarters of Petters' operations.

Investors pumped $1.9 billion into Petters' long-running pyramid scheme, making it the largest financial fraud in Minnesota history. They will get back just 10 to 14 percent of their money in the first wave of payments, according to court documents. The money will initially go to about two dozen large investment groups, which will later distribute funds to individual investors. Some of the large investors also are in bankruptcy.

The recovered amount could substantially top $172 million, depending on what happens in 108 lawsuits still pending against certain Petters investors. In those cases, Kelley has sought to recover roughly $1 billion in so-called "false profits" earned by investors who walked away with more cash than they put in the scheme.

Local lawyers have a chance to grab some of that business, as all of the previous contracts for legal and other professional services expired with the conclusion of the bankruptcy case, Kelley said. Future fees in those cases could easily be in the millions of dollars, he added.

So far, Kelley has collected $65 million by settling 84 of these lawsuits, known as clawbacks. Kelley said he can't predict how much of the $1 billion or so in pending claims could ultimately wind up in the hands of Petters' creditors. He said it could take several years to resolve the cases.

"I am hopeful that a number of those groups will settle with me," Kelley said.

Kelley, who has pushed aggressively on the clawback lawsuits, will no longer have sole authority over how that litigation will be handled. Instead, those decisions will be made by a creditor committee, which is likely to take a hard look at the costs associated with continuing the suits since any fees will reduce their potential recovery.

Some creditors have been critical of the fees paid so far in the bankruptcy case. In the past eight years, more than $85 million has been spent on lawyers, accountants and other professionals who sorted through Petters' affairs. That works out to roughly 30 percent of the proceeds, much higher than other comparable bankruptcy cases.

One of the sharpest critics has been Thane Ritchie, an Illinois hedge fund manager who helped finance a documentary called "The Second Fraud: a Ponzipalooza." But Ritchie recently agreed to settle his long-standing objections to the bankruptcy case and to pay $6 million into the liquidation fund to qualify for a slice of the proceeds. Ritchie's investment group lost about $160 million.

Jeffrey Meitrodt • 612-673-4132