The College of St. Benedict has agreed to hand over $600,000 of the $2 million gift it received from convicted Ponzi schemer Tom Petters.
St. Ben’s, which is located in St. Joseph, is one of the hundreds of targets named in so-called “clawback” lawsuits, through which the trustee of Petters’ bankruptcy estate is attempting to collect “false profits,” gifts, and other money that came from Petters or the fraud scheme, in order to recoup some of the funds that investors lost through the Ponzi scheme.
Petters pledged $3 million to St. Ben’s in 2003 for the renovation of the Benedicta Arts Center, a 1,078-seat auditorium that was renamed the Petters Auditorium. (It was later renamed again following Petters' conviction.) Court documents indicate that the school ultimately received $2 million of the pledged gift.
Receiver Doug Kelley filed a clawback lawsuit against St. Ben's in 2012, seeking $2 million from the school. Shortly thereafter, Governor Mark Dayton signed a new law that altered the statute of limitations for clawbacks involving charitable organizations that unknowingly receive tainted donations.
Kelley argued that the money should still be recovered from St. Ben's, but a federal judge in late 2012 sided with the college, ruling that the receiver did not have the authority to pursue the funds. Kelley appealed that decision, although court filings indicate that he will drop the appeal if the latest $600,000 settlement, which was reached following mediation, is approved. A U.S. bankruptcy court will consider the proposed settlement at a June 24 hearing, according to court documents. Under the terms of the settlement agreement, St. Ben's plans to pay the $600,000 in two installments.
Kelley said in a court filing that he believes the proposed settlement provides “an immediate and concrete benefit to the bankruptcy estates and their creditors while minimizing the risks, costs, and delay of administering the bankruptcy estates through further litigation and is in the best interest of the bankruptcy estates.”
The Mounting Cost of Clawback Claims
The cost of clawback litigation has been growing. Twin Cities Business, in a 2011 cover story, investigated the clawback process and associated legal fees. And many more clawback suits were filed following the publication of that story.
It’s unclear from court documents exactly how much the St. Ben’s clawback case has cost in legal expenses, but recent filings shed light on the high price of such efforts. In fact, in the past week-and-a-half alone, documents have been filed seeking court approval for the payment of roughly $3.5 million in legal and accounting fees to various firms involved in ongoing litigation tied to the Petters’ bankruptcy case and clawback claims, along with about $100,000 in expenses.
The largest request is for Lindquist & Vennum. Kelley is seeking approval to pay $1.18 million in fees and $33,879 in expenses to the Minneapolis-based firm, for its services performed between February 1 through April 30.
And court documents show that some of those firms seeking compensation have already been paid millions of dollars for their work on the cases. Hearings over the sought compensation are scheduled to be held later this month, court filings show.
Meanwhile, legal costs are expected to keep growing, in part because Kelley has expanded the scope of his targets and is now looking to pursue claims overseas.
But despite the high costs—hourly billings paid to overseas firms assisting in the effort can range from $450 to $600—the committee of unsecured creditors in Petters' corporate bankruptcy are supporting Kelley’s latest move to pursue claims overseas, according to a recent Star Tribune report.
Thus far, the estate has recovered about $110 million, net of professional fees, to offer some relief to creditors of the Petters' estate and victims of the fraud scheme, the Minneapolis newspaper reported. In addition, about $300 million has reportedly been recouped through related bankruptcy and receivership cases, for a total of $410 million.