Legal News

Petters, Ponzi Schemes and Polaroid: When Can Investors Sue?

By Dan Slater

Some Law Blog readers have been surprised over the relatively scant media attention given to the legal troubles of Tom Petters, who’s embroiled in what the FBI alleges may have been a $3 billion Ponzi scheme that defrauded hedge funds. (But then who isn’t involved in a Ponzi scheme these days?)

In October, Petters, founder of Minnetonka, Minn.-based Petters Group Worldwide — which owns Fingerhut, Polaroid, Sun Country and other investments — was arrested on charges of mail and wire fraud, money laundering and obstruction of justice. A few weeks later Minnesota federal judge Ann Montgomery put a freeze on the growing number of civil suits filed against Petters (pictured) after a court-appointed receiver argued that the suits were overwhelming his ability to preserve what he could of Petters’s many business entities — at least a dozen of which are now in bankruptcy.

But some companies and investors, reports the Stamford Advocate (link unavailable), don’t want to sit still. Acorn Capital Group, for instance, a hedge fund in Greenwich that loaned Petters $300 million, is challenging the freeze. It wants the stay lifted because $25 million of the investment went to Polaroid, which recently defaulted. The funding was secured by Polaroid’s inventory and receivables, according to Acorn.

The complicated case of Petters, 51, is playing out simultaneously in criminal, civil and bankruptcy courtrooms, notes the Advocate. Although Polaroid is not among the 10 Petters companies in Chapter 11 bankruptcy, it is part of the receivership and was always meant to be — a point that Judge Montgomery has reportedly emphasized.

South Korea-based LG Electronics Inc. and subsidiary Zenith Electronics, which have ongoing patent disputes with Polaroid concerning its flat-screen televisions, are also seeking to lift the stay.

Terry Fleming, an attorney for the receiver, who’s in charge of managing Petters’ bevy of companies, called attempts to lift the stay premature. The receiver has been on the job just two months and needs more time to gain control of Petters’ estate, he said.

PHOTO: Getty Images

Full post as published by Law Blog - WSJ.com on December 26, 2008 (boomark / email).