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« Case Shiller CHART: Home Prices Have AT LEAST 20% More To The Downside | Main | Must See: The Fed Is On Top Of The Situation »
Thursday
Jan062011

J.P. Morgan Sued For Role In Hedge Fund Ponzi

Video - J.P. Morgan Chase sued for $300 million in Petters case

Jamie Dimon and his roving gangs of bastard charlatans are at it again...

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Source - AP

ST. PAUL, Minn. — A court-appointed receiver trying to recover funds for victims of Tom Petters' Ponzi scheme has sued JPMorgan Chase & Co. for more than $300 million, alleging the bank should have known that money it seized from Petters was the result of fraud.

The Minnesota businessman was convicted last year of perpetrating a $3.7 billion Ponzi scheme that counted hedge funds, pastors, missionaries and retirees among its victims. Prosecutors said the one-time owner of Polaroid Holding Co. and Sun Country Airlines orchestrated the plot, but Petters has blamed his associates and is appealing his 50-year prison sentence. JPMorgan, its affiliates and some individuals seized more than $300 million in assets from Petters in the wake of his arrest.

In a new claim filed Wednesday in federal court in Minnesota, receiver Doug Kelley demanded that JPMorgan return $25 million it seized from Petters' accounts just days after the 2008 FBI raid that led to his arrest.

  • "This was JPMorgan trying to step ahead of the Ponzi scheme's victims and creditors."

Red flags included evasive emails from the Petters team in response to due diligence requests, as well as a lack of tax returns and audited financial statements for Petters Co. Inc. – the business the lawsuit says was central to the Ponzi scheme and funded most of the Polaroid acquisition.

"During the course of its due diligence, JPMC uncovered or should have uncovered numerous red flags that should have put JPMC on notice of the Petters Ponzi scheme," the lawsuit said. "In light of these red flags, JPMC knew or should have known that the funds Petters used to acquire Polaroid from JPMC were derived from fraud." Kelley also claims the way the Polaroid transaction was structured suggests JPMorgan suspected the money was tainted.

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Source - Minn Star Tribune 

The New York bank had a long, lucrative association with Petters, receiver Doug Kelley noted in his 44-page lawsuit. Petters had numerous investment accounts at the bank from 2001 through 2008, into which he had deposited $83 million in proceeds from the Ponzi scheme over time, the suit says.

Kelley alleges that J.P. Morgan and its affiliates turned a blind eye to "numerous red flags" as they conducted due diligence related to the $426 million sale of Polaroid Corp. to Petters in 2005. The bank and its affiliates were conflicted, the suit alleges, because they collected more than $240 million on the sale and from related charges as they facilitated a leveraged buyout that saddled Polaroid with debts it could never repay.

In addition to the bank, the suit names as defendants:

•Jacques Nasser, a former CEO of Ford Motor Co. He was a managing director of former Polaroid owner One Equity Partners -- which J.P. Morgan owns and operates -- and a former director and chairman of Polaroid Holding Co. Nasser was paid more than $12.8 million in Ponzi proceeds, the suit says.

•Rick Lazio, a four-term Republican member of Congress from New York who was a J.P. Morgan executive vice president and a director of Polaroid Holding Co. Lazio, who ran unsuccessfully against Hillary Clinton for the U.S. Senate in 2000, received more than $500,000 in Ponzi proceeds, the suit says.

•Lee Gardner, Charles Auster and James Koven, managing directors of One Equity and directors of Polaroid Holding Co. Gardner received more than $200,000, Auster received more than $900,000, and Koven received more than $50,000 of the Ponzi proceeds, the suit says.

•J. Michael Pocock, a former director, CEO and president of Polaroid Holding Co. He received more than $8.5 million in Ponzi proceeds, the suit says.

•William Flaherty, a former executive vice president and chief financial officer of Polaroid Holding Co. He received more than $5.34 million in Ponzi proceeds, the suit says.

•Ira Parker, former chief legal officer for Polaroid Holding Co., who allegedly received more than $1.56 million in Ponzi proceeds.

Kelley, also a trustee for the bankrupt Petters companies, filed a parallel "clawback" action in U.S. Bankruptcy Court in October against the defendants. The new lawsuit, filed in U.S. District Court, relates to Kelley's role as receiver for Petters, who has not filed for bankruptcy protection.

The suit alleges that when J.P. Morgan learned about federal raids on Petters' offices on Sept. 24, 2008, it declared Petters Group Worldwide's outstanding credit line at the bank in default and seized Petters' personal investment accounts. The bank began liquidating the accounts within the week, claiming it was owed $20 million from Petters Group Worldwide's line of credit, which Petters personally guaranteed.

Kelley said in an interview Wednesday he has tried to get the bank to return the proceeds -- all of which came from Ponzi proceeds -- but it has refused to do so.

The lawsuit cites a litany of warning signs it says the defendants missed or ignored that should have tipped them off that Petters was running a fraud.

Among those signs: evasive e-mails from "the Petters team" in response to due diligence inquiries; a lack of tax returns and audited financial statements for Petters Co. Inc., "the central Ponzi scheme business that funded most of the Polaroid acquisition"; high interest payments Petters was making on loans to his supposedly lucrative businesses; revelations that Petters had 11 court judgments filed against him; and Petters' previous criminal records in Colorado and Minnesota involving dishonesty and theft.

The suit also says the "convoluted" way the bank and its affiliates structured the sale of Polaroid to Petters indicates it had concerns about Petters' funding sources.

None of the defendants has filed a response yet to the earlier, parallel lawsuit filed in bankruptcy court.

Some $36 billion flowed through the Petters Ponzi scheme during its existence over parts of two decades, according to a recent report from PWC.

Petters, who was convicted on 20 counts of fraud, money laundering and conspiracy late last year, is serving a 50-year sentence at the federal prison in Leavenworth.

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Reader Comments (12)

happy new year to all the regulars...i'm just getting back into the flow after 3 days away from the site...i haven't read comments yet so give me a few hours to get up to speed...
Jan 3, 2011 at 1:07 PM | Registered CommenterDailyBail
Jan 3, 2011 at 1:08 PM | Registered CommenterDailyBail
Sense on Cents Halls of Fame and Shame: 2010 Inductees

http://www.senseoncents.com/2010/12/sense-on-cents-halls-of-fame-and-shame-2010-inductees/

check this out...larry put us at #3...

thanks larry...
Jan 3, 2011 at 1:11 PM | Registered CommenterDailyBail
SEC IG Report: George Demos Pimped Peter Sivere

http://www.senseoncents.com/2010/01/sec-ig-report-george-demos-pimped-peter-sivere/

read this one...short and important...
Jan 3, 2011 at 1:13 PM | Registered CommenterDailyBail
Most british claimants on benefis have a post office account card run by this same company jp morgan, when i noticed it a while back, the first thing that came to mind, was that they would activly seek to take those benefits of those claimants in thee act of being prosecuted by the state or other independant body.
A bankruptcy run on the poorest.
This comment might help stop it happening so il make it known.
Jan 3, 2011 at 3:35 PM | Unregistered CommenterLd Elon
I forgot to mention, the second thing that came to mind is this-
When the benefit claimant has an account with this company, the money transaction goes in at 00:00 gmt, most british residents on these benefits wait until woking hours to go shopping, take the kids to school, and other daytime hourly things from about 06.00 gmt and onwards to about 22:00 gmt, so this would give the banks in other nations on their stock market a free run, on these claimants payments after british working hours.
Probably from t0:01pm to 5:59am
But being the payments go in at 00:00, i assume it will start at 00:01, to be on the safe side of the math.
Theres probably two accounts, one for fresh payments thee other for on going claims.
Obvioulsy if a person goes to withdraw an amount at any given time, the account status and bank numbers would file up to give them the monies in which their entitled, borrow from another account type of thing.

Leon Smaali
Jan 3, 2011 at 3:56 PM | Unregistered CommenterLd Elon
Read this book to understand the truth.
http://www.scribd.com/doc/19745589/Who-is-EsauEdom
Jan 3, 2011 at 8:35 PM | Unregistered CommenterMihail
Update: ACA to Sue Goldman for Abacus fraud.

http://online.wsj.com/article/BT-CO-20110106-713760.html
Jan 6, 2011 at 8:28 PM | Unregistered Commenterjohn
China OKs JP Morgan, Morgan Stanley joint venture.

http://www.reuters.com/article/idUSTRE7060DG20110107

Who did the newly announced WH chief of staff previously work for?
Jan 7, 2011 at 7:09 AM | Unregistered Commenterjohn
daley worked for one of the big wall street banks...i don't remember which off the top of my head...
Jan 9, 2011 at 1:29 PM | Registered CommenterDailyBail
SEC Bars Petters-Connected Hedge Fund Exec

http://news.hedgefund.net/default.aspx?story=13355

[snip]

The Securities and Exchange Commission has barred from the investment industry a former executive at a hedge fund firm connected with jailed Minnesota businessman Tom Petters.

Michelle Palm was barred from “association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent” in an order issued last week by the SEC.

Palm agreed to comply without admitting or denying the findings in the order, according to a SEC statement.
Feb 21, 2012 at 7:21 PM | Registered CommenterJohn

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