(CN) - J.P. Morgan Chase, Bank of America and other major aided and abetted Thomas Petters' $3.7 billion Ponzi scheme - the third-largest Ponzi in U.S. history - six hedge funds claim in a notice and summons in New York County Supreme Court.
Lead plaintiff Ritchie Capital Management and five other hedge funds claim they lost $177 million in the Ponzi. They put two dozen major banks on notice in the brief summons.
The 1-page notice lays out the Petters Ponzi scam, and the banks' alleged involvement in it.
Peters was convicted in December 2009 of 20 counts of conspiracy, wire fraud and mail fraud in St. Paul Federal Court, Minn. He is currently serving a 50-year sentence at the federal prison in Leavenworth, Kansas.
All told, federal investigators said, Petters and his co-conspirators cost their victims $3.65 billion. Petters told investors their money would be invested in merchandise to be sold to big-box retailers at a profit. But it was a classic Ponzi scam, with new money paying off old investors, and Petters living high on a very fat hog.
"Mr. Petters' company was a fraud, and Mr. Petters was his company," prosecutor John Marti told Reuters after the verdict.
In the new notice and summons, Ritchie et al. claim J.P. Morgan Chase Bank and Richter Consulting Inc. et al. conspired with Petters to commit fraud, and aided and abetted Petters' fraud against plaintiffs by acting with actual knowledge and substantially assisting in the commission of the fraudulent conduct.
"Among other things, J.P. Morgan Chase Bank N.A. entered into a 'Blocked Accounts' agreement with J.P. Morgan Europe Limited and Polaroid Consumer Electronics Europe B.V., an entity created by Petters to perpetuate his criminal activity, which established highly suspicious accounts in London that Petters used to illegally launder money," the plaintiffs say in the notice.
Ritchie claims all of the defendants were part of a syndicate of lenders, "arranged by J.P. Morgan Securities, Inc., that agreed to a $250 million revolving credit facility for the Petters-owned and controlled Polaroid, [which] fraudulently conveyed $43 million between February 3 and February 18, 2008, all of which was proceeds of plaintiff's loans to Petters, after defendants knew that Petters and his entities, including Polaroid, were insolvent and/or not able to pay their debts."
The plaintiff claims that about $24.5 million of the loans extended to Petters were fraudulently conveyed to J.P. Morgan Chase in or around March 2008.
"Allowing defendants to retain the funds would constitute an unjust enrichment," they say.
The plaintiffs want the $177 million back, plus interest, and court costs, and damages for fraud, conspiracy, negligence and unjust enrichment.
They are represented by Jeffrey Liddle of Liddle & Robinson LLP in New York.
Here are the plaintiffs: Ritchie Capital Management LLC; Ritchie Special Credit Investments Ltd.; Rhone Holdings II Ltd.; Yorkville Investment I LLC; Ritchie Capital Structure Arbitrage Trading Ltd.; Ritchie Capital Management Ltd.
Here are the defendants: JPMorgan Chase & Co.; JPMorgan Chase Bank NA; JPMorgan Private Bank; Wells Fargo & Co. as successor by merger to Wachovia Capital Finance (Central); Wells Fargo Bank NA; Wachovia Capital Finance Corporation Central; UBS Loan Finance LLC; UBS AG; UBS AG Stamford Branch; Merrill Lynch Business Financial Services Inc.; LaSalle Business Credit LLC; Bank of America Business Capital; Bank of America Corp.; The CIT Group Inc.; The CIT Group/Business Credit Inc.; PNC Bank NA; Fifth Third Bank; Webster Business Credit Corporation; Associated Commercial Finance Inc.; Chase Lincoln First Commercial Corporation; Richter Consulting Inc.
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