Over the years, a very generous and well-known businessman showered Big Brothers Big Sisters of the Greater Twin Cities with money, more than $200,000 in all. For BBBS, which like most nonprofits struggled to keep its programs funded, it was welcome relief.

Unfortunately, the money didn't belong to the businessman, Tom Petters, who was eventually convicted of running one of the nation's largest Ponzi schemes.

Years after spending the money Petters gave them, BBBS and many other nonprofits faced the possibility of financial clawbacks, which would have forced them to pay back all of the money. The prospect for the agency was potentially devastating, said Robert McCollum, a board member.

"These are difficult times for all nonprofits," said McCollum. "It would have had a big impact on programs and the number of people they could serve."

On Thursday, however, BBBS is scheduled to settle with the trustee handling Petters' clawback negotiations, and under the agreement, they will pay back just $20,000.

That's because BBBS and McCollum led an effort in the Legislature to pass a law that reduced a nonprofit's exposure to clawbacks of money received from Ponzi schemes from six years to two. Minnesota is the only state to offer this level of protection to a nonprofit that unknowingly gets money from a scam.

It's a situation that pits two potential victims of a Ponzi scheme, the creditors who lost money and the charities that may have been given money for a building project or to start a new program, and now have to find a way to give it back.

Doug Kelley, the trustee whose duty it is to get money back for creditors in the Petters case, said the law change was enacted largely without his participation. He said it did indeed help BBBS and some other nonprofits that couldn't afford to repay donations, but could hamper efforts in future cases.

"You start with the proposition that it wasn't his money to give," Kelley said. "If a guy robs a bank and walks across the street and puts it in the collection plate, do you keep it?"

Obviously, no. But what if a donor widely believed to be legitimate gave you money a decade ago so you could buy a new building, and he's later discovered to be crooked? That's not so easy.

Kelley understands the nonprofit's dilemma. "If a nonprofit can demonstrate it is a hardship to pay and willing to open its books, we're willing to work with them," he said.

"The statute clearly had an impact on Big Brothers," said Kelley. But BBBS also allowed a forensic accountant to look at its finances and "they are not the kind of agency that has a lot of cash on hand. We're not trying to ruin small nonprofits," Kelley said.

McCollum said the statute has "definitely saved some nonprofits and churches," some of which faced the challenge of paying back more than a million dollars.

A small agency is different from a huge institution that may have large endowments, Kelley said.

So far in the Petters case, Kelley has dealt with 59 charities and recouped $14.3 million out of a possible $22.5 million. The trustee has dismissed five cases because the charity couldn't pay. Some larger institutions, such as Miami University of Oxford, Ohio, and St. John's Abbey in Collegeville, Minn., repaid millions without being sued, Kelley said.

Susan Brown, public policy director of the Minnesota Council of Nonprofits, said small and midsize agencies on yearly budgets usually spend whatever they take in. They are also obligated to spend the money on whatever program the donor selects.

"So, we're really pleased with the law," Brown said. "We think it's good in general for nonprofits for the long term."

jtevlin@startribune.com • 612-673-1702