While creditors are waiting for some portion of the millions that they lost to be returned, many of the biggest net winners in the fraud are trying to hold onto what they have. Both groups are comprised mostly of Petters investors.
Doug Kelley, the court-appointed trustee in the Petters corporate bankruptcy case, has collected about $310 million so far from all sources. He says there's still about $1.7 billion in "false profits" outstanding that he's trying to reclaim, much of it held by large hedge funds.
A ruling Friday by U.S. Bankruptcy Judge Gregory Kishel allows Kelley to consolidate nine bankruptcy cases, and, Kelley said Friday, "solidifies my ability to pursue the large hedge funds."
For more than a decade, Petters, a prominent Twin Cities businessman and philanthropist, ran a collection of companies based in Minnetonka, which eventually included Sun Country Airlines and Polaroid Corp. His legitimate businesses were shown at his trial in 2009 to have been supported by a separate massive Ponzi scheme.
He was convicted on 20 fraud counts and sentenced to 50 years in federal prison, which he's serving in Leavenworth, Kan.
The hedge funds in question in Friday's ruling had argued that "special purpose entities" that they had set up to secure their investments with Petters offered them protection. Kishel's 107-page decision Friday noted several red flags that the hedge funds should have seen during the years that they invested with Petters.
If the hedge funds' financial "structures (had) been more tightly constituted and then parlayed with utter consistency, they would have a stronger claim to protection" from the case consolidation that he ordered Friday, Kishel wrote.
The next step in the clawback cases against the hedge funds will involve motions by Kelley to obtain documents and depositions, allowing him to track the money the hedge funds gained investing with Petters.
When the Petters Ponzi scheme unraveled in September 2008, there was more than $3.5 billion in notes outstanding. A total of 474 investors lost $2.5 billion in the scam, not including interest. Of the 202 clawback cases that Kelley filed, about 75 have been resolved, he said.
For more, see http://www.twincities.com/crime/ci_24582851/petters-bankruptcy-clawback-clears-hurdles