Kelley: Crown Bank Was “Integral Part” of Petters Scheme

Crown Bank was sued by the receiver in the Petters bankruptcy case, and it also faces accusations of fraud from Nevada-based Beal Bank-but the Edina-based bank has denied any wrongdoing and says the cases don't raise questions about its overall operations.

Regulators last month ordered Edina-based Crown Bank to deal with troubled loans and strengthen its reserves, according to a report by the Star Tribune.

But a Monday story by the Minneapolis newspaper points out that the bank also faces legal matters-including allegations made by Doug Kelley, the receiver in the Tom Petters bankruptcy case, who has long maintained that Petters had a special, and suspicious, relationship with the bank.

Kelley reportedly argued in a 2010 lawsuit that Petters owned 3,333 shares of stock in the bank, and that Petters had a “close relationship” with President Kevin Howk. Kelley asserts that $100 million was transferred in and out of Petters Company, Inc., accounts between 2004 and 2008, when Petters' $3.65 billion Ponzi scheme unraveled.

The suit alleges that Howk did “special favors” for Petters, including the writing of reference letters that indicated Petters was a good customer-despite the fact that he overdrew his account 133 times from 2004 to 2008 for more than $17 million, according to the Star Tribune.

Kelley's ongoing clawback suit against Crown Bank-one of about 200 he has filed against former Petters employees, associates, banks, and others who received payments from Petters-reportedly seeks $7.8 million from the bank.

In court documents filed as part of the case, Kelley described Crown Bank as “an integral part of Petters' Ponzi scheme,” according to the Star Tribune.

Crown Bank has sought dismissal of the case and said it wasn't close enough to Petters' companies to be considered an “insider,” the Minneapolis newspaper reported.

To compound the legal matters, Nevada-based Beal Bank has reportedly accused Crown Bank of fraud related to a $3 million participation loan that it and other banks made to developer Steve Hoyt, who has since filed for bankruptcy.

Hoyt defaulted on the loan, and Beal accused Crown Bank of orchestrating a scheme to get the bad loan off its books, according to the Star Tribune.

Crown Bank has reportedly denied any wrongdoing, and its CEO, Peter Dahl, called Beal's lawsuit “unfounded and premature.” Dahl also told the Star Tribune that he doesn't believe the Petters and Hoyt cases raise any questions about Crown's overall operations.

To learn more about Kelley's clawback suit, Beal's allegations, and Crown Bank's responses to the matters, read the full Star Tribune story here.