Three more cases down; 130 more cases to go.
That's the latest scorecard in the "clawback" phase of the Tom Petters bankruptcy case. Court approval of three "false profit" and fraudulent transfer settlements were granted Wednesday, providing the Petters corporate bankruptcy estate with nearly $34 million, bringing to $300 million the amount recovered since the business enterprises of the convicted Wayzata businessman were placed in bankruptcy in late 2008.
But the bankruptcy proceeding that stems from the $3.65 billion Ponzi scheme is nowhere near the finish line.
Trustee Doug Kelley said in an interview that it will be "at least" two more years before all the claims in the case are resolved, including 130 more clawback claims that potentially total $1.5 billion.
Payments that were approved Wednesday by U.S. Bankruptcy Judge Gregory Kishel and U.S. District Judge Ann Montgomery include $19 million from General Electric Capital Corp., which was a lender to Petters and his businesses; $13.5 million from the Minneapolis law firm Fredrikson & Byron for legal work it performed on behalf of Petters, and $1.25 million from the John T. Petters Foundation for tainted contributions it unwittingly accepted from Petters and associates.
There were no objections to the settlements, although General Electric and the Fredrikson firm maintained their denial of liability in their respective cases. In each case, though, the cost of going to trial on the dispute, along with the risk of an unfavorable result, outweighed the mediated settlement.
"This would have been a monster to litigate and to try," Kishel said of the Fredrikson settlement as he approved it. "The transactional cost would have been massive and the risk of presenting it to the court would have been very significant for the [bankruptcy] estate."
However, George Singer, a Lindquist and Vennum attorney representing Kelley, said it was the trustee's position that both GE Capital and Fredrikson & Byron "should have known" that illegal activity was occurring or should have seen "red flags ... that Tom Petters was not legitimate."
Petters is serving a 50-year sentence in Leavenworth federal prison in Kansas after being convicted of fraud, conspiracy and money laundering for running the decade-long scam.
Four immediate Petters associates, including whistleblower Deanna Coleman, are serving or have served prison time for their roles in the operation. At least one hedge fund manager, Gregory Bell, is also doing time for helping prop up the scheme in its dying days.
While Petters owned and operated a number of legitimate businesses, including Sun Country Airlines and Polaroid, the Ponzi scheme was run through a tightly held enterprise called Petters Company Inc., that lured investors with the promise of large payouts for the use of their money to finance consumer electronic sales to big-box retailers.
However, there were no sales, and money from new investors was used to pay off old investors until the operation collapsed in 2008 when Coleman informed federal authorities about it.
David Phelps 612-673-7269