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United States v. Petters

United States District Court, D. Minnesota

September 27, 2017

United States of America, Plaintiff,
v.
Thomas Joseph Petters; Petters Company, Inc., a/k/a PCI; Petters Group Worldwide, LLC; Deanna Coleman, a/k/a Deanna Munson; Robert White; James Wehmhoff; Larry Reynolds and/or d/b/a Nationwide International Resources, a/k/a NIR; Michael Catain and/or d/b/a Enchanted Family Buying Company; Frank E. Vennes, Jr., and/or d/b/a Metro Gem Finance, Metro Gem, Inc., Grace Offerings of Florida, LLC, Metro Property Financing, LLC, 38 E. Robinson, LLC, 55 E. Pine, LLC, Orlando Rental Pool, LLC, 100 Pine Street Property, LLC, Orange Street Tower, LLC, Cornerstone Rental Pool, LLC, 2 South Orange Avenue, LLC, Hope Commons, LLC, and Metro Gold, Inc.; Defendants, Douglas A. Kelley, Receiver, Gary Hansen, Liquidating Trustee.

          Patrick H. O'Neill, Jr., Esq., Larson King, LLP, St. Paul, MN, on behalf of Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investment I, L.L.C., and Ritchie Capital Management, Ltd.

          James Lodoen, Esq., Lindquist & Vennum LLP, Minneapolis, MN, and Steven E. Wolter, Kelley, Wolter & Scott, P.A., Minneapolis, MN, on behalf of Receiver Douglas A. Kelley.

          Gregory G. Brooker, Acting United States Attorney, and James S. Alexander, Assistant United States Attorney, Minneapolis, MN, on behalf of Plaintiff United States of America.

          MEMORANDUM OPINION AND ORDER

          ANN D. MONTGOMERY U.S. DISTRICT JUDGE

         I. INTRODUCTION

         On September 7, 2017, the undersigned United States District Judge heard oral argument on intervenors Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investment I, L.L.C., and Ritchie Capital Management, Ltd.'s (collectively, “Ritchie”) Motion to Terminate Receivership or, Alternatively, to Lift the Litigation Stay Against Thomas J. Petters [Docket No. 2897]. Receiver Douglas A. Kelley (the “Receiver”) and Plaintiff United States of America (the “Government”) oppose the Motion. For the reasons set forth below, the Motion is denied.

         II. BACKGROUND

         A. Petters' Ponzi Scheme

         This civil receivership case arises from a $3.8 billion Ponzi scheme orchestrated by Minnesota businessman Thomas J. Petters (“Petters”).[1] Ritchie is an investment fund that loaned over $100 million to Petters and his companies beginning in February 2008. Like many other creditors of Petters and his entities, Ritchie suffered substantial losses when the Ponzi scheme collapsed in September 2008.

         B. Receivership, Bankruptcy Estates Created

         On October 2, 2008, the Government commenced this action pursuant to the Fraud Injunction Act, 18 U.S.C. § 1345, to freeze the named defendants' assets and preserve them for victim restitution and forfeiture in the related criminal proceedings. See Compl. [Docket No. 1]. The Government stipulated to the appointment of a receiver to manage the defendants' assets, and the Court appointed Douglas A. Kelley, Esq. as Receiver.[2] See Second Am. Order Entry Prelim. Inj., Appointment Receiver, Other Equitable Relief (“the Receivership Order”), Dec. 8, 2008 [Docket No. 127] at 13. The Receivership Order includes a stay of litigation against the named defendants and the Receivership assets. Id. at 19-20.

         On October 11, 2008, the Receiver placed two of Petters' corporations, Petters Company, Inc. (“PCI”) and Petters Group Worldwide (“PGW”), and their related affiliates into Chapter 11 bankruptcy. See In re Petters Co., Inc., No. 08-45257 (Bankr. D. Minn.) (“PCI/PGW Bankruptcy Case”). The Receiver was appointed as Trustee of those consolidated bankruptcy estates. Thereafter, two other Petters-related businesses, Polaroid Corporation and Petters Capital, LLC, also filed for bankruptcy protection. See In re Polaroid Corp., No. 08-46617 (Bankr. D. Minn.) (“Polaroid Bankruptcy Case”); In re Petters Capital, LLC, No. 09-43847 (Bankr. D. Minn.) (“Petters Capital Bankruptcy Case”). Separate Trustees were appointed for those bankruptcy estates.

         C. Petters Convicted, Forfeiture Ordered

         Petters was found guilty by a jury in December 2009 and was sentenced to fifty years in prison. See United States v. Petters, No. 08-364 (D. Minn.) (“Criminal Case”), Sentencing J., April 8, 2010 [Criminal Case Docket No. 400]. Petters' sentence included a forfeiture money judgment of $3, 522, 880, 614.10. Sentencing J. at 6 (ordering forfeiture pursuant to Preliminary Forfeiture Order of Docket No. 395). Judge Richard H. Kyle, who presided over the criminal case, in declining to order restitution, held that Petters' victims may seek recovery through the remission of forfeited assets and the bankruptcy process. See United States v. Petters, No. 08-364, 2010 WL 2291486, at *3-5 (D. Minn. June 3, 2010).

         D. Receiver, Trustees and Government Coordinate Recovery Efforts

         In August 2010, the Government, Receiver, and Bankruptcy Trustees entered into a Coordination Agreement to resolve their competing claims to property that was subject to forfeiture and that belonged to the Receivership and bankruptcy estates. See Uphoff Decl. [Docket No. 1351] Ex. A (“Coordination Agreement”). The parties to the Coordination Agreement recognized that a “significant overlap of identity” existed among the creditors and victims of the Receivership and bankruptcy estates, and that pursuing their competing claims in litigation would diminish the recovery for victims and creditors, and would unduly delay the distribution of assets. Id. at 3. The Coordination Agreement is designed to maximize recovery to victims and creditors of the fraudulent scheme, minimize Receivership and bankruptcy expenses, and provide for the fair and orderly distribution of recoveries to victims and creditors through the bankruptcy and remission processes. See id. at 3-10.

         To further this objective, the Coordination Agreement establishes a collective process by which the Government, Receiver, and Trustees will recover and distribute property of the Receivership and bankruptcy estates. Id. at 4-10. This process includes allocating responsibilities among the Receiver and Trustees for pursuing clawback actions to recover assets transferred to third parties. In exchange for the coordinated recovery process, the Government agreed to forego forfeiture claims against third parties for the return of certain assets. Id. at 10.

         The Coordination Agreement was approved by this Court on September 14, 2010, after a joint hearing with the Bankruptcy Court. Order, Sept. 14, 2010 [Docket No. 1466].

         E. Receiver, Trustees and Ritchie Commence Lawsuits Against JP Morgan Chase & Co.

         The Receiver and Bankruptcy Trustees have commenced clawback actions against JP Morgan Chase & Co. (“JPMC”) to recover assets of the Receivership and bankruptcy estates that were allegedly transferred to JPMC. As discussed more fully below, Ritchie is also suing JPMC to recover assets that were transferred from Petters and his bankrupt entities to JPMC.

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