The lawsuits that stem from one of Minnesota’s largest white collar crime cases are not done flying. The fallout from Tom Petter’s Ponzi scheme and fraud will continue to play out in bankruptcy proceedings where the case’s bankruptcy trustee is trying to “clawback” invested money from those who should have known about the fraudulent ways of Tom Petters’ business practices. Two hundred and one clawback cases have been filed in the Petters’ bankruptcy case. The lawsuits seek $17 billion from former employees, business partners and philanthropic groups that received bonuses, earnings or charitable donations from Petters.
The term clawback is from the United States bankruptcy code. In a bankruptcy case dealing with fraud it allows a bankruptcy trustee to recapture money made in a fraudulent transaction for the potential equitable distribution to all creditors. The bankruptcy trustee and his legal team are reviewing transactions where investors knew or should have known the operation of the business was a fraud. Those that may see their investment, earned fees or bonuses disgorged are non-profits, lending institutions and professionals like lawyers and accountants that offered their services for a fee to Petters’ business. The argument goes that if an accountant knew or should have known Petters Group was a fraud, the accountant did not legitimately earn the fees and would be involved in defrauding unknowing parties of their investment.
Many individuals and groups accepted and spent the money received in good faith which will make the goal of recouping the money difficult. The bonuses received by employees may exist in new homes or charitable contributions received by non-profits may have been used to facilitate their services. The trustee faces the problems of legally winning the clawback cases and whether any money is available to be returned.
Tom Petters is currently serving a 50 year prison sentence on fraud and conspiracy charges for heading a $3.65 billion Ponzi scheme.
Source: Star Tribune, “Clawbacks Add Muscle to the Law’s Long Arm,” David Phelps, 10/25/10
