Judge applies brakes to slew of Petters suits

So many people are now suing Twin Cities entrepreneur Tom Petters -- accused of running what may rank among the largest Ponzi schemes in world history -- that a federal judge called a "timeout" Wednesday.

And another federal judge, facing mounting bankruptcy petitions from Petters' business enterprises, agreed Wednesday to herd them into a single case so they would be easier to manage.

The two court hearings, arising from the $3 billion fraud case against Petters and some of his associates, paint a picture of chaos that growing legions of attorneys are trying to rein in.

Petters is one of the Twin Cities' most well-known entrepreneurs and sought-after philanthropists whose holdings include Polaroid, Fingerhut and Sun Country Airlines.

In Minneapolis, U.S. District Court Judge Ann Montgomery put a hold on the mounting number of civil legal actions against Petters, his companies and associates after court-appointed receiver Doug Kelley and law partner Steven Wolter argued that a barrage of lawsuits is overwhelming their ability to preserve what they can of Petters many business entities -- at least a dozen of which are now in bankruptcy.

"We're seeking some amount of breathing room to fulfill the receiver's responsibilities," Wolter told Montgomery.

More than 30 civil lawsuits are now pending in multiple states, Wolter said, and finding attorneys to represent the Petters companies is costly and time-consuming.

Montgomery granted the requested stay on civil actions, freezing existing lawsuits and halting the processing of new ones. Attorneys said such stays are unusual in receivership cases such as this.

In St. Paul, U.S. Bankruptcy Judge Gregory Kishel agreed to consolidate 10 bankruptcy petitions from Petters companies under a single case number. Not all of the companies are operating.

The first companies to file were Petters Company Inc., a financing entity, and Petters Group Worldwide, a Minnetonka holding company.

The latest to file is Palm Beach Finance Holdings Inc., one of many companies that Petters owns as an individual. In a bankruptcy petition filed Sunday, Palm Beach Finance didn't list any assets but listed liabilities of more than $1 billion. It owes about $1.1 billion to Palm Beach Finance Partners LP, a Florida hedge fund, documents show.

Sun Country Airlines, which Petters also owns, filed for bankruptcy along with several related entities this month, but the airline is not in receivership and that airline bankruptcies will proceed separately from the others.

"There are still some people left at the company who aren't pleading or in jail," Lodoen joked at one point.

Kishel granted Petters' legal team extra time -- 60 days -- to file documents in the complicated case, which he called a record. "These are special circumstances, I guess," Kishel said.

He said the companies could continue to pay current and terminated employees the salaries and benefits they were owed before the bankruptcy filings.

Petters Group Worldwide has slightly more than $100,000 in its bank account -- not quite enough to make payroll on Friday, Kishel said.

Kelley, the receiver, has been busy shuttering offices, liquidating assets, trying to collect on the various receivables and interviewing forensic accounting law firms, Lodoen said. He said Kelley also is trying to unfreeze company bank accounts so that he can access the money as necessary.

Another Petters holding, Great Water Media, which publishes the in-flight magazine for Petters' Sun Country Airlines among other magazines, has been sold to Minneapolis-based Tiger Oak Publications for $275,000, plus some $50,000 in receivables, Lodoen said.

Petters Warehouse Direct is liquidating its three stores -- including one at the Mall of America -- a process that should wrap up by the end of the month, he said.

Meanwhile, one of the Petters companies has made progress in collecting on a "multimillion-dollar loan" it made to Central America Holdings LLC, Lodoen said. He said the firm runs the Jamaican lottery.

David Phelps • 612-673-7269