Petters Trustee Goes After Fund for ‘Shameless Deceit’

By Daniel Gill

The trustee handling recovery from the Thomas Petters Ponzi scheme sued Michael L. Stern and Stonehill Capital Management and others based on their “shameless and deceitful conduct” regarding claims in the case.

The May 9 complaint seeks a judgment effectively nullifying claims of $720 million and $141 million and seeks further damages. It accuses certain members of the official committee of unsecured creditors of breaching their fiduciary duties owed to the creditors in the bankruptcy liquidation and using confidential information for their own gain.

Petters, a Minneapolis businessman, was convicted in 2009 of fraud, conspiracy and other charges for running a $3.7 billion Ponzi scheme. He’s serving 50 years.

Douglass A. Kelley is liquidating the Petters Company Inc. and related companies in Chapter 11 as trustee.

Greenpond South LLC, controlled by Stern and Stonehill, bought a $141 million claim, according to the complaint, and was appointed to the creditors committee.

Stern later caused Stonehill secretly to acquire another claim, known as the Varga Claim. Kelley claims Stern used information that was confidential to the creditors committee to acquire the claim.

The Varga Claim was represented as having no value. The committee and the trustee entered the consensual plan of reorganization based in part on these representations, the complaint alleges. In addition, settlement agreements were reached based on the understanding the claim had no value.

But later “Stern and Varga revealed their fraudulent intent,” Kelley said. Despite asserting zero value, Stern sought to recover the claim for $720 million

He alleges Stern never disclosed that he, through Stonehill, acquired the Varga Claim, and no one filed the required notice of the change of the claim’s ownership.

The complaint seeks a judgment disallowing Greenpond’s claim and the Varga Claim. It seeks an order that Greenpond return the nearly $8 million it already received on behalf of its claims.

The complaint also seeks actual and punitive damages.

The defendants have not responded to the complaint. Stern’s lawyer didn’t respond to a request for comment.

Foley & Lardner LLP, Chicago, represents Kelley.

The case is Kelley v. Greenpond South LLP et al. , Bankr. D. Minn., 08-45257, Complaint 5/9/18 .

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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