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Listen Tom Crann talks to Minnesota Council of Non-Profits director Jon Pratt about how charities are dealing with clawbacks
Not everyone who invested in Tom Petters' more than $3 billion fraud scheme came out a loser.
Some folks were winners -- big winners -- and now they're being pressured to give back that money.
The way Doug Kelley sees it, scores of investors, companies and nonprofits came out more than $1 billion ahead because of Petters' financial shenanigans.
And whether they knew what was going on or not, said Kelley, the court-appointed receiver overseeing the bankruptcy of the fallen Petters' business empire, they're legally obligated to return that money.
He's been trying to talk people and organizations into returning money voluntarily.
Now, Kelley is running out of patience. He's in the process of filing some 200 lawsuits to squeeze money out of big hedge funds and individual investors.
"I'm not a very popular person in this state right now," he said.
Kelley's targets include Twin Cities some nonprofits, former Petters' employees who got fat bonuses and restaurateur Dean Vlahos, who did not respond to calls requesting comment.
Petters fraud, known as a Ponzi scheme, involved using money from new investors to pay off people who got in earlier.
Kelley said that at a minimum, people and organizations that invested money with Petters have to return any profits they made.
"Under the law of Ponzi schemes if you take out more money than you invested in the Ponzi scheme, the excess is called a false profit and that needs to be returned to the estate," in order to compensate creditors and investors who lost money, he said.
Kelley says schools, charities and other nonprofits also have to return contributions received from Petters. So, far nonprofits have voluntarily returned about $10 million. That includes about $5,000 from Minnesota Public Radio. *But MPR did not return $3,500 saying it was outside the six-year statute of limitations.*
Kelley said a number of organizations have made a statute of limitations argument, but he intends to test it. Kelley said he'll reach back for money from the start of the Ponzi scheme, more than a decade ago.
Still, Kelley is prepared to hear a lot of people complain they don't have the money he's seeking.
"Some of the folks just don't have the money. The corporation is defunct and has been for a long time," he said. "I don't expect expect to get 100 cents on the dollar by any means. But that's our starting point."
Some people have been surprised to be sued by Kelley. They include James and Julie Hoag of St. Paul. Kelley's lawsuit against them alleges they made more than $65,000 by lending money to Petters at annualized interest rates of up to 26 percent.
James Hoag says he once owned some stock in Petters' company, but says he never made any money with Petters.
"That is not me. Never made a loan to Petters," he said. "Simply a shareholder in Red Tag Biz. Never made a loan to Petters and never received a dollar from Petters."
If Kelley succeeds in collecting the $1 billion he's after, he figures net investor losses would be close to $500 million -- a lot less than the $3.5 billion prosecutors said Petters ripped off from investors.
The difference stems from accounting complexities, but the U.S. Attorney's Office does not dispute Kelley's calculation.
"Both are legitimate ways to look at loss," said Jean Cooney, a spokeswoman for the U.S. Attorney's Office.
Cooney's office has also been collecting money that could be used to compensate victims of Petter's fraud. She estimates the U.S. Attorney has gathered between $10 million and $20 million.
Kelley, meanwhile, has between $225 million and $250 million, raised mostly by selling Petters' corporate and personal assets. Cooney says the U.S. Attorney and Kelley will work together to help Petters' victims.