Petters executives agree to give back $8.5M

After a lengthy mediation process, 30 officers, directors, employees and strategic partners of convicted businessman Tom Petters have agreed to repay nearly $8.5 million to the bankruptcy estate of Petters Cos. Inc. and its subsidiaries.

In a document filed late Tuesday in U.S. Bankruptcy Court, Petters trustee Doug Kelley itemized settlements in the ongoing attempt to recover bonuses and other compensation paid to the executives before the Ponzi scheme orchestrated by Petters collapsed in September 2008.

The settlements follow lawsuits filed by Kelley asserting that the funds paid to the executives were obtained by Petters from unwitting investors and were not his to give away.

The $8.5 million payday for the bankruptcy estate is roughly one-third of the $22.8 million sought by the trustee from the 30 Petters insiders who agree to pay back at least a portion of their former boss's largesse.

The settlements were mediated by U.S. Bankruptcy Judge Nancy Dreher starting in July and still require approval by Bankruptcy Judge Gregory Kishel.

"I'm in a settlement mode," said Kelley. "The alternative is to litigate for a couple of years and burn up attorney's fees."

Petters had a habit of treating his employees well at the end of the year. Annual bonuses of up to $1 million were not uncommon.

"These were people who were just going to work and making a living. They kept the airplane flying," said Thomas Heffelfinger, an attorney for three Petters associates who have not settled with the trustee. "They had no knowledge of what Tom Petters was doing."

The settlements filed this week show some as small as $2,000 and four over $1 million. Terms also show that some of the individuals have agreed to a monthly or annual repayment schedule. Most, however, will pay off their amount 30 days after the settlements are approved. Former Petters executive Mary Jeffries, for example, has agreed to pay $1.899 million as part of the settlement.

About 200 similar clawback lawsuits totaling more than $1.6 billion have been filed in the Petters bankruptcy. Half of the targets have filed dismissal motions, and the fight over those motions is expected to be contentious later this month.

Most of those lawsuits involve parties that invested with Petters and made a profit. The trustee asserts that the net returns earned by the investors constitute "phantom profits" that came off the backs of other investors.

Petters, who is serving a 50-year prison sentence for his role in the fraud, sought money from investors to purportedly buy discount consumer electronics to resell to big-box retailers. But no goods existed, and for more than 10 years he and his associates paid off old investors with funds from new investors.