New Law Limits Charities’ Liability in Clawback Suits

A new law changes the statute of limitations from six years to two years for clawback lawsuits seeking fraudulent transfers made to charitable organizations.

Governor Mark Dayton on Tuesday signed a new law that alters the statute of limitations for “clawback” lawsuits involving charitable organizations that unknowingly receive tainted donations-and the change is expected to significantly impact the ongoing efforts to recoup investors' losses from Tom Petters' Ponzi scheme.

Clawback lawsuits are used to recover ill-gotten gains from those who benefited from a fraud in order to pay back those who were defrauded. The new law changes the statute of limitations from six years to two years for fraudulent transfers made to charitable organizations, meaning that charities are only required to turn over tainted contributions if they are requested within two years of the donations being given.

Doug Kelley, the bankruptcy trustee charged with recouping funds for investors who lost money from Petters' $3.65 billion fraud, has filed more than 200 clawback lawsuits, some of which aim to recover money from charitable organizations. Within the past two weeks, he has filed clawback lawsuits seeking more than $2.3 million from Minnesota Teen Challenge, a nonprofit counseling and assistance program, and $2 million from the College of St. Benedict in St. Joseph.

The new law applies to Kelley's current attempts to recover money in the Petters fraud. According to a report by the Star Tribune, Kelley is seeking as much as $445 million in contributions-only half of which he believes may be collected under the new law. Kelley told the Star Tribune he will likely challenge the bill's constitutionality.

Charities that supported the new law said they don't have the necessary resources to perform due diligence on all of their contributors and have often spent the donated money by the time criminal activity is associated with the donation, the Star Tribune reported.