In a move that could limit financial recoveries in the Tom Petters Ponzi scheme, the Minnesota Senate on Thursday approved legislation to protect nonprofit organizations from legal attempts to recover or "claw back" donations that stem from illegal activities.
Sen. Benjamin Kruse, R-Brooklyn Park, said the bill attempts to "strike a balance" between the victims on both sides of a crime like the $3.65 billion fraud operated under the watch of Petters, who now is in prison for his crimes. The bill could relieve strapped nonprofits from having to repay an estimated $200 million in clawback payments.
But the legislation could have notable impact on collection efforts in the Petters bankruptcy case, where trustee Doug Kelley is attempting to recover so-called false profits and other proceeds from investors and those who received donations from Petters.
Kelley, who has filed clawback lawsuits against several nonprofits, said he may lose the ability to collect more than $200 million because the new legislation establishes a two-year statute of limitations on fraudulent financial transfers.
"It is sad because this legislation has so many unintended consequences," Kelley said. "What about the school teachers and the janitors who lost what they invested with Petters? They're being victimized twice."
Kruse said he was approached by a host of nonprofit and religious organizations about the need for such legislation after they handed back donations from contributors "who were not upstanding" about the source of their funds.
"My focus was not on the Tom Petters case. My focus was on a statute that will stand the test of time," Kruse said.
However, Susie Brown, public policy director for the Minnesota Council of Nonprofits, said the legislation was solely driven by the Petters scheme, which collapsed in 2008 after a decade-long run.