The latest lawsuit in a string of several seeking more than $300 million was filed Wednesday, December 29, 2010, in federal court by Douglas A. Kelley, the court-appointed trustee for Mr. Petters's companies. The suit is based on claims that J.P. Morgan Chase knew or should have known that the funds seized from Petters's J.P. Morgan accounts after his arrest were fraudulently obtained.
Mr. Petters allegedly ran a Ponzi scheme with profits upwards of $3.5 billion. Arrested early in October 2008, he was found guilty in December 2009 of 20 counts of wire fraud, mail fraud, money laundering, and conspiracy, and is currently serving a 50-year prison sentence.
The lawsuit goes on to say that when Mr. Petters was seeking to buy Polaroid, J.P. Morgan acted as adviser to Polaroid and provided a $185 million credit line, receiving $40 million in fees for its work. Polaroid was auctioned off from the now bankrupt Petters and Co holdings for $88 million following the scheme collapse.
The suit seeks the $25 million that the bank received from liquidating Mr. Petters's holdings after he was arrested. "We saw this as J.P. Morgan trying to get a step ahead of the victims," Mr. Kelley stated.
"During the course of its due diligence, [J.P. Morgan] uncovered or should have uncovered numerous red flags that should have put [J.P. Morgan] on notice of the Petters Ponzi scheme," Kelley asserts. "However, the windfall that [J.P. Morgan] would earn on the transaction gave [J.P. Morgan] an incentive to ignore red flags that would have revealed the massive Ponzi scheme that Petters used to fund the Polaroid purchase."