United States District Court, D. Minnesota
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
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
MONTGOMERY U.S. DISTRICT JUDGE
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.
Petters' Ponzi Scheme
civil receivership case arises from a $3.8 billion Ponzi
scheme orchestrated by Minnesota businessman Thomas J.
Petters (“Petters”). 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
Receivership, Bankruptcy Estates Created
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. 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.
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
Petters Convicted, Forfeiture Ordered
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).
Receiver, Trustees and Government Coordinate Recovery
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.
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.
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].
Receiver, Trustees and Ritchie Commence Lawsuits Against JP
Morgan Chase & Co.
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.