ST. PAUL, Minn. (AP) — A court-appointed receiver trying to recover assets in the Tom Petters’ Ponzi case has sued JPMorgan Chase & Co., alleging the bank should have known that money it seized from Petters was the result of fraud.
The Minnesota businessman was convicted last year of perpetrating a $3.7 billion Ponzi scheme that counted hedge funds, pastors, missionaries and retirees among its victims. Prosecutors said the one-time owner of Polaroid Holding Co. and Sun Country Airlines orchestrated the plot, but Petters, who is serving a 50-year sentence, blames his associates and is appealing.
In a new claim filed Wednesday in federal court in Minnesota, receiver Doug Kelley demanded that JPMorgan return $25 million it seized from Petters’ accounts within days of the 2008 FBI raid that led to his arrest.
“This was JPMorgan trying to step ahead of the Ponzi scheme’s victims and creditors to the tune of $20 million bucks,” Kelley said Thursday.
Mary Jane Rogers, a spokeswoman for JPMorgan, declined to comment.
Kelley has also been seeking to recover about $285 million in fees and proceeds that JPMorgan received on Petters’ purchase of Polaroid in 2005. JPMorgan had been the majority owner of Polaroid, so it earned profit as the seller, financer and financial adviser in the transaction, the lawsuit said. Kelley claims that while the defendants were conducting due diligence before the purchase, they ignored signs of trouble so they could profit on the deal.
Red flags included evasive emails from the Petters team in response to due diligence requests, as well as a lack of tax returns and audited financial statements for Petters Co. Inc. — the business the lawsuit says was central to the Ponzi scheme and funded most of the Polaroid acquisition.
“During the course of its due diligence, JPMC uncovered or should have uncovered numerous red flags that should have put JPMC on notice of the Petters Ponzi scheme,” the lawsuit said. “In light of these red flags, JPMC knew or should have known that the funds Petters used to acquire Polaroid from JPMC were derived from fraud.” Kelley also claims the way the Polaroid transaction was structured suggests JPMorgan suspected the money was tainted.
The claims connected to the Polaroid purchase have already been filed in bankruptcy court, and will be pursued in this latest lawsuit in civil court if attempts for recovery in bankruptcy court are unsuccessful, said Thomas Jamison, an attorney on Kelley’s claim.
The $25 million in seized assets is a new claim, however. Kelley claims JPMorgan should have known those assets were derived from fraud, because of the work it did with Petters before the Polaroid deal, and because of its years-long relationship with Petters.
“Not only had Petters deposited more than $83 million into the investment accounts during a time when none of his businesses were profitable, JPMC, more than any other investor or creditor of Petters, had the opportunity to conduct extensive due diligence…when it orchestrated the Polaroid transaction,” the lawsuit states.
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