Petters’ Ponzi scheme money returned to victims totals $722 million

Doug Kelley has been working since 2008 to help organizations and individuals who lost billions in the Twin Cities businessman Tom Petters’ Ponzi scheme, the biggest financial crime in Minnesota history.

The bankruptcy trustee’s search to collect assets linked to Petters’ $1.925 billion scheme spanned 26 countries, including the Cayman Islands, Luxembourg, Germany, Switzerland, the Netherlands and the British Virgin Islands.

Now, after 13 years, he says his work is almost done.

As of last week, $722 million has been recovered and returned to victims and creditors, according to a motion filed last week in U.S. District Court in Minneapolis to approve final fees and costs and close the receivership.

Just four or five cases remain, including one filed against the Bank of Montreal in Canada, which could bring in an additional “significant amount,” Kelley said Monday.

“We can see the light at the end of the tunnel here,” Kelley said. “It has been a long and arduous process that was at times bumpy, but I am quite pleased with the collective return of $722 million.”

Petters, 63, formerly of Wayzata, was indicted in 2008 on multiple counts of mail fraud, wire fraud, money laundering and conspiracy for operating a Ponzi scheme. A year later, a federal jury found him guilty on all counts and he was sentenced by U.S. District Judge Richard Kyle to 50 years in prison.

He is an inmate at the federal prison in Leavenworth, Kan.; his release date is May 13, 2051, according to the U.S. Bureau of Prisons.

At the time of Petters’ sentencing, Kyle said he didn’t believe Petters, the one-time owner of Polaroid and Sun Country Airlines, was unaware of the fraud. Petters, he said, “was captain of the ship.”

Others wrapped up in the enterprise also were convicted. As part of their sentences, Petters and others were ordered to forfeit assets gained through the Ponzi scheme, including bank and investment accounts, vehicles and real estate.

Kelley commenced more than 300 lawsuits, the majority of which were so-called “claw-backs,” or bankruptcy adversary proceedings, to recover other profits and employee bonuses received by Petters’ earliest investors or executives.

“Unraveling the scheme was complicated by the complexity and scope of the Petters fraud,” he wrote in the motion filed Wednesday.  “While most Ponzi schemes involve a single individual or business at the epicenter of the scheme, Thomas Petters and his associates employed scores of corporations, subsidiaries, affiliates and special-purpose entities to perpetrate their fraud. In all, more than 150 such entities were involved.… On several occasions, government attorneys likened the required asset tracing process as similar to trying to untangle a bowl of spaghetti.”

The court’s docket “confirms the breadth of the task,” according to the motion, currently containing 3,230 entries.

The total amount distributed to date — $722,150,400 — includes creditor settlement and distributions; lender settlement distributions; payments to bankruptcy estates and funds forfeited by the U.S. government for distribution to victims, Kelley said. “It was a team effort,” he said.

The Petters case broke ground when it came to case law dealing with Ponzi schemes, according to Kelley.

“In 2008, Ponzi schemes like this had never been uncovered before. This was pre-Madoff,” he said referring to Bernie Madoff, the mastermind of the biggest investment fraud in U.S. history. “We went to the Eighth Circuit Court of Appeals, and we went to the Minnesota Court of Appeals. We went to the highest court of the land in England in cases that came out of the Caribbean, and each time there was unsettled law about what exactly the rules were for recovery. A lot of those rules were made by the lawyers who were representing me.”

According to the motion, the fees and costs of the receivership — including Kelley’s fees, his attorneys’ fees, accounting fees and other fees and costs — have not been paid since June 30, 2020. Kelley said he has filed a separate motion seeking fees and costs for outstanding professional services provided.

Total fees paid to Kelley, Wolter & Scott, Kelley’s law firm, are $26 million.

The hearing to approve the motion is scheduled for July 22 in front of U.S. District Court Judge Ann Montgomery.