Court ruling could affect $1B in Petters clawback lawsuits

Published 10:16 am Monday, March 16, 2015

MINNEAPOLIS — A recent Minnesota Supreme Court decision could affect the potential recovery of more than $1 billion from lenders who profited from relationships with convicted Wayzata businessman Tom Petters, a newspaper reported Sunday.

In an unrelated but similar case, the court ruled last month that Minnesota law doesn’t include a key provision that makes it easier to recover, or clawback, so-called false profits from a Ponzi scheme of the type Petters was convicted of orchestrating.

Attorneys on both sides are studying the case to assess its impact on recovery efforts in the $3.5 billion Petters scheme, the largest financial fraud in Minnesota history..

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The ruling means clawback lawsuits will have to prove that lenders knew or should have known they were involved in a Ponzi scheme — not that they merely associated with a business venture that turned out to be fraudulent.

Under terms of a “Ponzi scheme presumption,” financial transfers between lenders and the scheme operator are considered fraudulent on their face, and lenders cannot recover more than they invested with a debtor. That means that interest payments on the loan can be recovered.