Bad Boys of Bankruptcy: S3E5: Tom Petters and the Largest Ponzi Scheme in the Midwest

In this episode, host Judge Gunn is joined by attorneys Jim Lodoen of Spencer Fane LLP and Doug Kelley at Kelley, Wolter & Scott, P.A. to discuss Tom Petters, who operated a $3.65 billion Ponzi Scheme based in Minnesota before the scheme unraveled. Doug Kelley shares the fascinating details of the major criminal investigation into Petters that began when Diana Coleman, a participant in the scheme, informed the FBI that Petters owed at least $3.5 billion to victims of his scheme, and agreed to wear a wire to gather evidence against Petters. Petters cloaked his massive Ponzi scheme in a cloak of legitimacy by acquiring significant ownership interests in legitimate companies, including Polaroid, using ill-gotten gains from the scheme. Petters, a prolific salesman, started the scheme by targeting smaller mom and pop businesses, and eventually moved up to soliciting hedge funds to invest in the scheme. Petters used the fruits of the scheme to fund a lavish luxury lifestyle, including multiple luxury homes, a Bentley, and regular trips to Las Vegas. Doug Kelley was ultimately appointed as the receiver for a number of Petters’ entities that were involved in the scheme, which then led them to file several Chapter 11 bankruptcy cases. Jim Lodoen was then tapped in the corporate bankruptcies to assist in recovering fraudulent transfers made from the corporate debtors to the “net winners” of the Ponzi scheme for ratable distribution to all victims of the scheme, including clawing back charitable donations made by Petters using his ill-gotten gains, including (ironically) the John Petters Ethical School of Business at Miami, Ohio which was created using a $5 million donation from Petters. Lodoen also assisted in negotiating a cooperation agreement with the U.S. Attorneys’ office to coordinate recovery efforts across the criminal case and the corporate bankruptcy cases, and ultimately wound up hiring attorneys in at least 32 different countries to assist in recovering funds from “net winners” abroad. Ultimately, the professionals working to recover the funds from “net winners” winded up making a roughly 30% dividend to all victims of the scheme. Petters was ultimately convicted of multiple counts of wire fraud, mail fraud, and money laundering, and was sentenced to 50 years in prison.