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Monday, February 26, 2024 | Back issues
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Tangle Increases as Petters Trial Ends

(CN) - Closing arguments were expected today in Minneapolis in the trial of Thomas Petters, who is accused of running a $3.6 billion Ponzi scam. Meanwhile in Chicago, a money management firm claims that Petters' former CEO and COO persuaded it to loan the Petters Group $100 million, then prevented it from getting its security back by falsely telling a bankruptcy court that it had loaned the money to assist in the Ponzi scam.

Petters is being tried in Minnesota Federal Court. He claims he knew nothing about the Ponzi scheme, which was carried out by executives he trusted.

In the new complaint, filed late last week in Chicago Federal Court, itchie Capital Management sued Petters' former CEO Camille Chee-Awai and former COO Mary Jeffries.

Ritchie claims that Chee-Awai and Jeffries persuaded it in January 2008 to loan Petters Group $31 million to pay off a loan to JP Morgan Chase.

It claims the Petters Group promised Ritchie would become "Polaroid's senior security holder" once the liens were released. Chee-Awai told Ritchie that Polaroid was valued at around $779 million, according to the complaint.

But Ritchie says Petters also shopped around a similar deal to other companies, "fraudulently re-pledging the Polaroid assets" to other lenders to get more money.

Ritchie says it ultimately loaned Petters more than $100 million.

Petters resigned when he was charged with running the Ponzi scheme. Ritchie says it then secured an order in Cook County Court to freeze all of his companies' assets.

Ritchie claims Petters gave control of his companies to his attorney, Douglas Kelley. It claims that in September 2008 Kelley "intentionally ignored the orders Plaintiffs had previously obtained in Illinois and, inter alia, refused to recognize the receiver appointed by the Illinois court, even barring this receiver from PGW's [Petters Group Worldwide] offices, and obtained from Petters a proxy transferring Petters's rights as sole shareholder in PGW and his other companies to Kelley's law partner, Steven Wolter."

The complaint continues: "As Receiver, Kelley placed PGW and PCI [Petters Co. Inc.] into bankruptcy and became Trustee over those companies' bankruptcy estates. Kelley has irreconcilable conflicts of interest arising from his obligations as the attorney, Receiver and Trustee for PCI and PGW. For example, rather than act on behalf of PGW's bankruptcy estate as Trustee, Kelley has taken steps to assure that PGW's assets are forfeited over to the Government in a forfeiture action."

Kelley allegedly placed Petters Group and Petters Capital into bankruptcy, and did not fire Jeffries as CEO of Polaroid, allowing her to place it into bankruptcy as well.

The complaint adds: "Thus, Kelley enabled Jeffries to continue the conspiracy to deprive Plaintiffs of the benefits of their security interests in Polaroid. With Kelley's cooperation, Jeffries placed Polaroid into bankruptcy where she initiated the filing of an adversary complaint in the bankruptcy proceeding in a wrongful attempt to invalidate Plaintiffs' security interests. Then, Jeffries falsely stated under oath in the bankruptcy proceeding that plaintiffs' loans to PGW [Petters Group Worldwide] had been made solely to benefit and aid Petters' fraudulent activities rather than to benefit PGW and Polaroid."

Jeffries told the court that Ritchie had invested around $146 million into Petters Capital as part of the Ponzi scheme, according to the complaint.

"In exchange for her cooperation with Kelley's plans to forfeit PGW's assets to the Government ... [Jeffries] has been allowed by Kelley to retain the multi-million dollar bonuses she received from Petters," the complaint states.

Ritchie says Polaroid was not even in need of bankruptcy protection.

Ritchie claims that as a result of Jeffries lies, the court denied its security interest in Polaroid, and that Polaroid's assets were liquidated in a "fire sale" for a mere $88 million.

Ritchie says its claims are not related to Petters' alleged Ponzi scheme.

Ritchie Capital and its funds - Ritchie Special Credit Investments, Rhone Holdings II, Yorkville Investments I and Richie Capital Structure Arbitrage Trading - seek damages from Jeffries and Chee-Awai, alleging RICO violations, fraud and tortious interference.

Ritchie says it is prohibited from bringing an action against Thomas Petters and the Petters companies without permission from the Minnesota Federal Court.

Its lead counsel is Thomas Cronin.

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