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Master Ponzi Schemer Thomas Petters’ Estate Items Auctioned Off

Posted in Bankruptcy Clawback News, Ponzi Profiles

Luther Auctions

Minnesota native Thomas Petters may be spending the rest of his life in Fort Leavenworth Prison, but this Monday participants in the auction of his estate in St. Paul were looking to pick up a piece of that Ponzi magic. Petters was the author of a massive $3.65 billion Ponzi scheme under the cover of Petters Group Worldwide that ended up defrauding more than 500 investors, including major corporations. They were told they were funding the wholesale purchase (secured by promissory notes) of electronics that would be sold to big-box stores, a venture which supposedly produced an incredibly profitable and stable 10-18% annual rate of return. In reality, as in other Ponzi schemes, Petters was fabricating purchase orders and using later investors’ monies to pay off earlier investors. The scam ultimately collapsed in 2008- generating a tidal wave of adversary claims against investors who had placed their funds in the scheme. These clawback lawsuits are at times even filed against victims who were “net losers” and lost their principal.

Luther Auctions

Petters, it turns out, was an avid sports fan and had a treasure trove of memorabilia, from signed jerseys, vintage baseball cards and custom jackets to a Sugar Ray Leonard boxing glove and Muhammad Ali fight poster. Also on auction were several gold rings and other pieces of jewelry, as well as antiques dating from the Han Dynasty. Among the stranger items on display was a life-size rubber dog covered with…dollar bills. The cash on the dog is unfortunately far too little to compensate investor losses. 86 items were sold for a total of $19,835.00 The proceeds of the auction are destined for the court-appointed trustee, who has collected approximately $300 million out of the $3 billion lost to redistribute to scheme victims.

Auction items can be viewed at the Luther Auctions Catalog.

 

 THOMAS JOSEPH PETTERS

Photo: Wall Street Journal

  • Age: 50
  • Companies: Petters Group Worldwide, Petters Company Inc.
  • Feeders: Lancelot Investment Management LLC, Palm Beach Capital Management LP, Arrowhead Capital Management LLC, Stewardship Investment Advisors LLC
  • Supposed Job: Venture Capitalist
  • Scam: Wholesale brokerage promissory notes
  • Profits: Average profits of 10-18 % per year
  • Ponzi Time: 1995-2008
  • Evidence: Fraudulent Purchase Orders; Misleading Marketing Materials; Misappropriation of Investor Funds; False Account Statements
  • Amount of Fraud: $3.65 billion
  • Number of victims: Over 500
  • Location: Minneapolis-St. Paul, MN
  • Indictment: Multiple counts of conspiracy, fraud, money laundering, misappropriation of assets
  • Court: U.S. District Court, Minnesota

US v. Tom Petters Indictment

Tom Petters Adversary Complaint

 

Vincent Thakur Singh Ran $20 Million Ponzi Scheme, Defrauded Investors Through “Perfect Financial Group”, Says Federal Indictment

Posted in Bankruptcy Clawback News, Legal Representation, Ponzi Profiles

Vincent Thakur Singh has been indicted on multiple counts of wire fraud, false statements and bribery. Arrested in Idaho on Monday, Singh is accused of operating a Ponzi scheme. Under the cover of his company Perfect Financial Group, he is said to have preyed on nearly 200 fellow members in California’s Indian-Fijian community to defraud them of $20 million. Singh told prospective clients he was in the business of “hard money lending” and promised them up to 30% yield on their investments plus principal within months. In addition, he would pressure his targets to invest as quickly as possible due to a supposedly limited window of opportunity. Yet instead of making “safe loans”, as Singh represented to victims, the indictment states he was using their money in a Ponzi scheme to pay fictitious returns from later investors to earlier investors.

According to the indictment, Singh also misappropriated investor funds in his own interest, spending his clients’ money extravagantly. Among major expenses incurred in the alleged scam, we find the following uses of victims’ cash:

  • $12 million in losses through gambling
  • $2 million diverted to bank accounts and much of that amount withdrawn as currency
  • $880,000 for production of a movie
  • $370,000 for down payment on commercial property
  • $662,500 to buy three retail business franchises

Perfect Financial Group collapsed in 2010 and Singh was forced to declare bankruptcy. In the aftermath of the enterprise’s insolvency, a court-appointed trustee has sought to recover assets lost in the purported fraud- $9.65 million plus triple any interest more than 10% that was paid to victims. Unfortunately investors who lost significant funds, even life savings, to the scheme are also being targeted with adversary claims- known as clawbacks. Clawback lawsuits are filed with the goal of ultimately redistributing money equitably to victims, but when they hit “net losers”, the justice of that goal comes into question.

Representing half of the clients who face clawback litgation in the Singh case, attorney Michael Hackard told the Sacramento Bee:

They thought they were helping the trustee by talking with him to get at Vincent Singh’s fraud…They feel utterly betrayed that he turned around and sued them.

The Sacramento Bee reports that Singh, formerly an Elk Grove resident, will be transported by the US Marshals Service from Idaho to Sacramento for his first court appearance. He is being held on a no-bail warrant.

VINCENT THAKUR SINGH

Photo: sacramento-ponzi.blogspot.com

  • Age: 43
  • Company: Perfect Financial Group
  • Supposed Job: Investment Broker, Lender
  • Alleged Scam: Investment in safe “hard money” loans
  • Profits: 30% return within months
  • Ponzi Time: 2007-2010
  • Evidence: Misrepresentation of Returns; Fraudulent Wire Transfers  
  • Affinity Group: Indian-Fijian community in California
  • Number of Victims: 190
  • Amount of Fraud: $20 million
  • Location: Sacramento/Northern California
  • Indictment: 21 Counts of Wire Fraud, 2 Counts of False Statements in Bankruptcy, 1 Count of Bankruptcy Bribery
  • Court: U.S. District Court, Eastern District of California

US v. Vincent Thakur Singh Indictment

Singh Bankruptcy Filing

Singh Adversary Claim (Redacted)

Vincent Singh FINRA Broker Report

 

Advice to a Weary Litigant: The Role of Special Settlement Counsel

Posted in Bankruptcy Clawback News, Legal Representation

Michael Hackard’s thoughts and strategy on litigation and special settlement counsel were originally published by The Bella Institute in March 2012. See the original entry.

You’re at loggerheads. You’ve spent countless time and money on a matter that you once naively expected to see quick and economic resolution. You’re emotionally drained. You’ve become skeptical of lawyers and of the law in general. Is this really the way the system works? You’re a litigant – a civil litigant – and you seem caught in a whirlpool – a drain rapidly depleting your economic and emotional reserves. You need help. Do you really need another lawyer or law firm? “I’m already paying one – isn’t that enough?” Maybe – maybe not. Have you ever heard about special settlement counsel?

Image: dharmanation.org

It would be the exceptional civil litigant who at some point in the litigation process does not weary of the expenses, strife, time and failed expectations of litigation. This observation equally applies to companies as well as to individuals. Litigation at its most elementary level is simply a claim – “I claim that you did this or failed to do that.” The response generally – also elementary is – “No I didn’t” or “I did it because you didn’t do that” or maybe “So what if I did – I had every right to.” It would be flippant to condense centuries of constitutional, common and statutory law into a few sentences – still a few words well identify common observations of civil litigation – “emotional, exasperating and expensive.” Few would use words like “good, great, or gratifying.”

I’m a lawyer – 35 years a lawyer. I’ve been a litigator as well as an occasional litigant. Being a litigator is far more pleasant than being a litigant. This is an observation worthy of note. Litigation lawyers like litigation. It is challenging, exciting and often profitable. They’re like emergency room physicians – they want to be great at their jobs – they like challenges – problems energize them – and they know that most rational human beings do not want to be their patients except in the direst of circumstances. 

Litigation at times can be somewhat genteel – following some well trod procedural paths ending in an evenhanded trial before a judge and jury. It can also be chaotic – a series of claims and counter-claims – a growing rancor between the litigants’ well paid advocates – and a declining commitment to the early on stated purpose for the litigation – “It’s the principle of the thing.” Emotions can be laid raw – accusations become rampant – with calls to “our better nature” left unheeded.

Sage advice to litigants and to litigators alike is age old. There is a time for everything – “A time to tear down, and a time to build up. . . A time to tear apart and a time to sew together. . . (And)  A time for war, and a time for peace.”[1] For litigants and their attorneys the litigation process itself has often torn so much down and apart that the time for peacemaking seems long gone.  It is often at the time of frustration – maybe near despair – that the role of special settlement counsel becomes timely.

The role of special settlement counsel can take a variety of forms. It can be the role of the diplomat – the wordsmith who lowers tension – who creates trust a step at a time and who is respected for his or her integrity. Like diplomats, special settlement counsel represents interests. They are not unbiased arbiters, but they work to be unbiased. They are not mediators, but they work to bridge differences rubbed raw by litigation.  They are surely not judges, but it is their judgment that is valued – is sought – to end a seemingly interminable conflict.

The role of special settlement counsel by near necessity falls on those who have not been in the fight – the war – and whose willingness to engage in peacemaking is not seized upon by adversaries as a sign of weakness.  Special settlement counsel can take to heart Abraham Lincoln’s oft-quoted admonition to “Discourage litigation.” This advice was given by a great litigator – one whom also advised “Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser – – in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.”

I have been retained by parties in litigation as their special settlement counsel.  I’ve also been the primary litigator tasked with negotiating with my opponent’s settlement counsel. The benefits of settlement counsel in either case are noteworthy.

As special settlement counsel the emotions of litigation’s hard fought battle are more remote. You can be accommodating – gracious – truthfully observant – yet still credible and strong. You usually haven’t been hired to negotiate the terms of surrender – you’ve been hired to negotiate peace – a peace that in Lincoln’s words might prevent the nominal winner from becoming the real loser.  That said there are times when special settlement counsel is just hired to stop the bleeding

Several years ago I was hired to end what had become an enormously expensive and destructive litigation. I first saw my former client in a restaurant. It had been years since I worked for him. He looked like he was going to die. He asked whether he could come to my office and see me. He told me a story about litigation gone wild. His fortune was at stake. He had hired well respected litigators and they had fought hard – so hard that his opponents had also hired well respected litigators – some of the most expensive in the country. They too had fought hard. The litigation battle had grown in importance and expense. It grew – as it grew more and more of my client’s net worth was becoming imperiled – and his liquidity was dwindling with the burgeoning expenses of all out war.  Someone was going to lose the fight that he was in – and lose it big – and it looked like it was going to be him. He hired me in a special role with special instructions – settle this case! Stop the bleeding!

General Douglas MacArthur. Photo: LIFE Magazine

I was engaged and I immediately began to work.  My client’s litigators had little to benefit by settlement. They had done what they were asked to do – go to battle. The lawyers from both sides could no longer effectively talk –especially about settlement. My client wanted to settle so badly that he even wanted to call his opponent’s lawyers and plead for settlement – a call that they couldn’t ethically accept. It was clear that I had to do what I could to settle the case –and yet not convey the near desperate situation that my client faced. This was not an easy task. I determined that the first step after I gained an understanding of the litigation, its history and its likely outcome, was a personal meeting in Los Angeles with the other party’s litigator, a “Big Law” senior litigation partner.  I’ll never forget opposing counsel’s opening line – “I’m General MacArthur – I’m returning – tell me why I would accept anything except a full and complete unconditional surrender.”

I knew that I was not going to accept MacArthur’s proffered “full and complete surrender.” I had neither been hired as Marshal Petain to confirm abject defeat nor Colonel Custer to execute a heroic but futile last stand. My client wanted peace but he also wanted solvency – and hope. He got all three. MacArthur wasn’t fully satisfied with the settlement outcome and neither was my client. MacArthur was probably a little more satisfied – an earlier intervention would have balanced out the pain and profit a little better. Still the bleeding stopped and my client went on with his business.

I haven’t always been counsel engaging the soon to be victorious MacArthur. I have also been in the MacArthur role. I’ve negotiated with special settlement counsel hired to bring an end to unproductive litigation. Whether negotiating as the victor or vanquished, once again some words of Abraham Lincoln have meaning – “With malice toward none, with charity for all . . . let us strive to finish the work we are in.” When litigation is ending and ending peaceably it is important to be gracious. There have been enough accusations and enough bitterness. There really is a time for peace.

When the time comes I make an effort to recognize the special role of counsel – that of peacemaker. I often tell stories of how I have been on the other side – there are times when no matter a lawyer’s skill, experience or persistence the likely success of a case is simply unarmed by the facts or by the law. It is often in the role of peacemaker that lawyers have, again in Lincoln’s words, “the superior opportunity of being a good man (or woman).”

Peacemaking in litigation can often be accomplished with the role of a mediator or of a trial judge. For those who may want to advance the process but still have an advocate on their side – rather than a non-affiliated neutral, the utilization of special settlement counsel can be of vital assistance in positively resolving seemingly intractable litigation.

© Copyright Michael A. Hackard, 2012. All rights reserved


[1] Ecclesiastes 3:3,8

Ponzi Schemes and Clawbacks: Defending the Victims, not the Perpetrators

Posted in Bankruptcy Clawback News, Legal Representation, Ponzi Analysis

This legal overview of Ponzi schemes and clawbacks was written by Michael Hackard for The Bella Institute in August 2012. See the original entry.

Something’s been proliferating across America – something that has at times shaken investor confidence and at others made financial investors feel like there is a war against them. That which has been proliferating – Ponzi schemes – is of course well exemplified by the Bernie Madoff matter. Madoff is the largest Ponzi scheme in history with an estimated $20 billion “invested” into the scheme over a period of years by over 15,000 “investors.”

Charles Ponzi, the original schemer. Businessinsider.com

While Madoff makes front page news, there are hundreds of other Ponzi schemes that might only draw local attention. A 2011 study did an overview of Ponzi schemes that included 329 major investment fraud cases.[1] A judicial tongue-in-cheek observation is that the “essence of a Ponzi scheme is to use newly invested money to pay off old investors and convince them that they are earning profits rather than losing their shirts.” (Citation omitted). Tens of thousands of investors throughout the land have been duped into “investing” into Ponzi schemes fully believing that they were earning profits. This colossal misunderstanding is often not clarified until some judicial action has been pursued against the perpetrators – whether criminal prosecution, bankruptcy or state court litigation.

In Spring, 2012 the United States Court of Appeals for the Fifth Circuit had occasion to help define a Ponzi scheme.

[A] Ponzi scheme is a ‘fraudulent investment scheme in which money contributed by later investors generates artificially high dividends or returns for the original investors, whose example attracts even larger ‘investments.’ The American Cancer Society v. Cook, 2012 WL 919674 (5th Cir. 3/20/12) (Jones, Ch. J.).

Ponzi scheme victims often learn that disengaging from the investment can be very painful, surprisingly protracted and expensive. It is well settled law that when a debtor in bankruptcy has operated a Ponzi scheme, the court appointed bankruptcy trustee may institute actions seeking to avoid and recover payments made to the scheme’s investors.  This is often referred to as a “clawback” claim, which essentially is an adversarial claim pursued by the trustee to seize illicit profits from knowledgeable investors.

Receiving a letter from a bankruptcy trustee demanding the repayment of any funds returned to the investor can create a pretty scary atmosphere. With their investment gone, the Ponzi defendant in jail, bankrupt and/or missing, the investor is left with a problem that at times can seem insolvable.

Ponzi victims often ask their attorneys how it is possible that the victim can be sued by the bankruptcy trustee. Without addressing all the legal theories that make up the right of recovery as well as defenses to recovery, it is more economical to reference some general rules.

The general rule in several jurisdictions that has been evolving judicially is that a defrauded Ponzi investor is recognized as having given “value” to the extent of his or her principal invested. This “value” supports a section 548(c) affirmative defense to a clawback claim.

The theory behind the rule is that the investor has a right of action for fraud against the Ponzi perpetrator equal to the amount invested. Repayment of principal is essentially payment on the antecedent debt that accrued from the fraud. That said, the amount in excess of principal that was repaid to the investor is deemed not to have been given for value and may be recovered by the bankruptcy trustee.

The Ponzi investor who is subject to an adversary claim needs to know that such clams are normal and often required by a bankruptcy trustee to satisfy his or her fiduciary obligations. While normal, so are the defenses that apply to such claims. Investor’s complaints that the claims strike at the jugular and are not calibrated to ferret out the innocent must be tempered by the reality that bankruptcy trustees often have little in the way of records and must rely upon bits and pieces of data that may not be accurate.  In these cases the ultimate resolution of the claim can be accomplished by “showing the proof.”  An effective defense to avoidance or “clawback” claims requires this showing of proof.


[1] Christopher T. Marquet, The Marquet Report on Ponzi Schemes, A White Collar Fraud Study of Major Ponzi-Type Investment Fraud Cases Revealed from 2002-2011, June 2, 2011. Available at http://www.marquetinternational.com/pdf/marquet_report_on_ponzi_schemes.pdf .

© Copyright Michael A. Hackard, 2012. All rights reserved

New IRS Rules for Clawbacks

Posted in Bankruptcy Clawback News, Legal Representation, Ponzi Analysis

Getting hit with a clawback lawsuit after being the victim of a Ponzi scheme is a double-whammy. And while we seldom look to the taxman for good news, the IRS has published new rules for Ponzi scheme victims who then went on to suffer clawback lawsuits from a court-appointed trustee.

Image: Sallyscopshop.com

Responsible for administering the Ponzi scheme’s bankruptcy, the trustee files these adversary claims to “claw back” fictitious returns that were paid out to investors in the course of the perpetrated fraud. These actions are taken with the stated goal of equitably redistributing funds to all the victims of the scheme. Oftentimes, however, a trustee will indiscriminately target both “net winners” and “net losers” of a Ponzi scheme, meaning that victims who already lost their principal are also forced to pay money they likely don’t have.

The new IRS rules permit an investor who was hit with a clawback to claim what the trustee seized in their tax returns. A clawback victim can consult with a tax attorney and figure out the best way of filling out returns to mitigate some of the damage. There are two basic ways to address the issue of clawback losses:

  1. File an amended tax return in the year the clawback was paid out to the trustee and deduct that amount on federal income taxes.
  2. Deduct the amount in the year they earned the fictitious returns that cost them the tax.

Depending on the amount claimed in your return (due to losses suffered by a clawback), you could be saving significantly on taxes well into the future. So there is the possibility of recouping some of what was taken by the court-appointed trustee.

 

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments), was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding any penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction matter addressed herein.

 

© 2012 Hackard Law, a Professional Corporation. All Rights Reserved. This article is provided as general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.