Sr. U.S. District Court Judge Richard H. Kyle (D. Minn.) started a recent opinion: “Ponzi schemes leave no true winners once the scheme collapses.” Except the lawyers.
The process of reallocation of stolen money is complicated, costly, and, consequently, inherently imperfect. There will always be innocent victims left uncompensated. There will be legal fees along the way so that the cash redistribution is taxed, in a sense, (a “transaction cost” or “externality,” in economists’ jargon). In other words, large numbers of lawyers have profited handsomely in the asset reallocation.
Standing in the shoes of the fraudulent enterprises, Kelley sued numerous innocent charities for donations they received in good faith from businesses and individuals implicated in the Petters fraud. Many, faced with a court-appointed Receiver with a bottomless war-chest to litigate, wisely caved and settled.
But one did not.
In a huge win for the College of St. Benedict, represented by a team of lawyers at the Twin Cities firm of Faegre Baker Daniels, led by Jerry Miranowski, Judge Kyle ruled that all of Receiver Doug Kelley’s claims against the College failed.
Commenting on the case to the Star Tribune, Kelley is quoted as having said:
“Every one of these charities took the money in good faith and used it for the stated purpose. They said it would be wrong to keep stolen money,” Kelley said. “I’m surprised and disappointed that St. Benedict took a different tack. What kind of example does that set for its students?”
The comment is unfortunate. First, it is factually incorrect. Receiver Doug Kelly forced some charities to disgorge money or face financially crippling legal battles. Many, faced with that choice, bought the peace. Very very few returned all the donations that they received, what he calls the “stolen money” but what the charities received (and sometimes already spent) as donations, sometimes years before the Petters fraud came to light. And I do not know how many charities, if any, actually said, “it would be wrong to keep stolen money,” as Mr. Kelley suggests.
It is ironic because Mr. Kelley himself has been paid a great deal of “stolen money” for his work on this matter. He has not undertaken these cases pro bono. What kind of example is he setting?
Furthermore, it is quite certain that the Minnesota legislature and Governor of Minnesota disagree with Mr. Kelley. In the Spring of 2012, they passed and signed legislation cutting the statute of limitations for “clawback” claims against charitable organizations. In effect, therefore, the State of Minnesota found that it would not be wrong for charities to keep what Kelley calls the “stolen money.”
Putting aside a sanctimonious comment from one who has been profiting handsomely himself from Petters fraud for some years now at the expense of innocent fraud victims, perhaps the example that the College of St. Benedict has set for its students is to stand up for what you believe in, stay strong, and choose your lawyers well. Excellent lawyers can obtain excellent results. Congratulations to the College of St. Benedict and its legal team!