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Victims Of $3.6 Billion Petters Ponzi Fraud Protest Court Process

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Thomas Petters (2008 jail photo)
(Image by State of Minnesota)
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Victims of the $3.6 billion financial fraud by Minnesota businessman Tom Petters are justifiably angry about the federal victim-restitution process that began after his 2008 arrest.

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The feds used hardball tactics to install well-connected cronies in key positions, which should trouble anyone who fears precedent if their own finances get trapped in such a dispute nationally.

Most remarkable was that the federal judge supervising the case named the prominent local attorney Douglas Kelley to be court receiver and U.S. trustee even though the scam defendant Petters had previously hired Kelley to defend his companies.

Victims of the Petters scam are so disturbed at such decision-making and what they regard as excessive fees by Kelley and his legal team that some of them financed The Second Fraud, a documentary about their case that premieres Aug. 25 at the Uptown Theater in Minneapolis for a one-night showing.

On behalf of the Justice Integrity Project, I'm on a seven-person panel assembling there to discuss the case after the movie. Kelley and at least four other representatives of the government, his legal team or the Petters defense were invited, but none have confirmed.

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Here's a look at our discussion about this fascinating case:

For more than a decade, Tom Petters masterminded the first multi-billion dollar U.S. "Ponzi scheme" ever discovered. Authorities raided his companies on Sept. 24, 2008 after a tip from his former receptionist-lover, who'd received $8 million in bonuses during her ascendancy into his executive ranks.

Petters, a college drop-out now aged 53, received 50-year prison term in April. This ended his huge donations to leading politicians in both major parties, his swank lifestyle, and his control of such well-known companies as Polaroid and Sun Country Airlines.

But Second Fraud filmmaker Ryan Frost, another panelist, says:

Ultimately we discovered a tangled web of local professionals: judges, politicians and lawyers, some of which may have knowingly or unknowingly allowed the Petters fraud to perpetuate in the first place. Now these groups are left in charge to clean up the mess.

As hundreds of years of legal precedent are blatantly ignored, creditors and victims are crying foul from the sidelines as they are swindled a second time by the very system that is in place to protect them.

Last Friday, I published a background column on the case, which is on my legal group's website as part of our ongoing research nationally.

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Such creditor concerns are familiar to me from my five years covering federal courts fulltime for the Hartford Courant three decades ago as a newspaper reporter. One of my major investigations in Connecticut, in fact, grew from a lawyer's tip that a federal bankruptcy judge was assigning his friends lucrative cases in suspicious ways.

The stories showed, among other things, that the judge often ate from the same plate as his favorite attorney. "He eats like a bird," the judge explained to me of his elderly companion, to whom he awarded complex cases in admiration for his legal skills.

Reaction to that story blocked reappointment of the judge after 18 years on the bench in a career previously unblemished, at least publicly. An eminent district judge confided to me that he was glad the information came out, thus ending whispers and helping the judiciary maintain high standards.

In fairness, that kind of "scandal" seems very tame compared to shenanigans surrounding the Petters case.

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Andrew Kreig is an investigative reporter, attorney, author, business strategist, radio host, and longtime non-profit executive based in Washington, DC. His most recent book is "Presidential Puppetry: Obama, Romney and Their Masters," the (more...)

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