Tom Petters is presently serving a 50-year prison sentence for his December 2009 conviction on 20 counts of wire fraud, mail fraud, money laundering and conspiracy. Essentially, he ran a Ponzi scheme that was profitable for him, and some counterparties as well. Recently, the court appointed trustee in charge of liquidating the business empire Petters formed, Doug Kelley, has filed suit against JP Morgan Chase & Co. (NYSE: JPM) for more $266 million, claiming the New York-based investment bank profited greatly from Petters’ multibillion-dollar scheme.
Kelley filed the suit in U.S. District Court in Minnesota, claiming that JP Morgan and affiliated investment firm One Equity Partners received $241.6 million in Petters funds through the $426 million sale of Polaroid Holding Co. to Petters Co. Inc. in 2005. Before the merger, JPMorgan directly or indirectly was a majority owner in Polaroid, and it also made money off the sale by serving as a financier, syndicate manager and financial advisor in the transaction, according to Kelley. Petters himself also held numerous investment accounts at JPMorgan between 2001 and 2008. The bank improperly liquidated $25 million held in Petters investments after federal agents raided Petters’ offices in September 2008, Kelley said.
“[JPMorgan Chase & Co.] knew or should have known that the money in Petters’ investment accounts was derived from fraud. In the post Patriot Act days it is hard to argue this point, since firms are required to document sources of income for all their clients. In addition to knowledge JPMC acquired in connection with the management of Petters’ investment accounts, in 2005, JPMC had the opportunity to conduct extensive due diligence on Petters and his companies in connection with. JPMorgan has not yet commented on these allegations.
