• February 3, 2011

Bank robber “Slick Willy” Sutton is reputed to have responded to a reporter’s question, “Why do you rob banks?” by answering, “Because that’s where the money is…”   Makes sense.

Is Douglas Kelley, Trustee in the Petters Fraud Litigation, taking a page out of that playbook, bringing a suit against J.P. Morgan Chase to try to recoup some of the money stolen by Petters and his crew?  Is Kelley’s effort a shakedown? Did J.P. Morgan Chase do anything wrong, or is it just a bank…where the money is?  

These will be a few of the many questions likely to be addressed before U.S. District Court Judge Patrick J. Schiltz (D. Minn.) over the course of this litigation, which could be protracted.

Kelley’s story of J.P. Morgan Chase’s culpability is summarized in the complaint along these lines:

The red flags [that allegedly should have tipped off JPMC as it helped Petters finance the purchase of Polaroid (and, in the process, collect more than $40 million in fees)] included: (i) evasive emails from the Petters team in response to due diligence inquiries; (ii) lack of tax returns and audited financial statements for PCI, the central Ponzi scheme business that funded most of the Polaroid acquisition; (iii) the fact that Petters’ lenders were charging at least 15-25% interest on loans to his businesses even though his businesses were supposedly generating billions of dollars in revenue and hundreds of millions of dollars in profits; (iv) not a single Petters-controlled business was profitable; (v) eleven judgments filed against Petters; and (vi) Petters had previously been convicted and jailed for crimes involving dishonesty and theft.

Kelly goes on:

JPMC and the Polaroid Control Defendants knew or should have known that the funds Petters used to acquire Polaroid were derived from fraud.  Indeed, JPMC structured the Polaroid transaction in a way that suggests that it knew or suspected that Petters’ money was tainted. JPMC had indicated it was very wary ofPetters’ way of financing. As a result, JPMC insisted that before it would agree to any post-merger financing for Polaroid, Petters would have to obtain a “firm commitment” letter – meaning a letter from a major bank committing to provide all the funds necessary for the transaction. No legitimate bank would issue such a letter for Petters or his businesses so, JPMC came up with an alternative arrangement. Instead of a firm commitment letter, JPMC required that PCB obtain funding for the entire $426 million purchase price, place all the money in two escrow accounts and complete the merger. Only then would JPMC provide financing for Polaroid.

Kelley is being represented in this litigation by the Minneapolis high-powered litigation boutique firm of Fruth, Jamison, & Elsass PLLC. Others in other contexts have also sought to hold JP Morgan responsible for Ponzi schemers

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