JP Chase sued over Petters Ponzi scheme

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JP Chase sued over Petters Ponzi scheme

Receiver trying to recoup funds in Petters' Ponzi scheme sues JP for over

$300 million

Amy Forliti, Associated Press, On Thursday December 30, 2010, 8:12 pm EST

ST. PAUL, Minn. (AP) -- A court-appointed receiver trying to recover funds for

victims of Tom Petters' Ponzi scheme has sued JP Chase & Co. for more than

$300 million, 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 has blamed his associates

and is appealing his 50-year prison sentence. JP, its affiliates and some

individuals seized more than $300 million in assets from Petters in the wake of

his arrest.

In a new claim filed Wednesday in federal court in Minnesota, receiver Doug

Kelley demanded that JP return $25 million it seized from Petters'

accounts just days after the 2008 FBI raid that led to his arrest.

" This was JP trying to step ahead of the Ponzi scheme's victims and

creditors to the tune of $20 million bucks, " Kelley said Thursday.

Jane , a spokeswoman for JP, declined to comment on the

charges.

Kelley has also been seeking to recover about $285 million in fees and proceeds

that JP received on Petters' purchase of Polaroid. JP 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 JP suspected the money was tainted.

The claims connected to the Polaroid purchase have already been filed in

bankruptcy court, and will be pursued in civil court if attempts for recovery in

bankruptcy court are unsuccessful, said Jamison, an attorney on Kelley's

claim.

The $25 million in seized assets is a new claim, however. Kelley claims JP

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.