The bankruptcy trustee for Petters Group Worldwide LLC is seeking to recoup approximately $105 million from Arrowhead Capital Management LLC on behalf of creditors in the firm's bankruptcy case. The Petters Group founder, Thomas Petters, was convicted of leading a leading a $3.5 billion Ponzi scheme and sentenced to 50 years in prison in April. Because of Petters' fraud conviction, the bankruptcy trustee is arguing that any money received from the Ponzi scheme should be return to the bankruptcy estate.
"Defendants knew or should have known that they were benefiting from fraudulent activity or, at a minimum, failed to exercise reasonable due diligence with respect to Petters" and its affiliates, according to the complaint filed by Douglas Kelley, the trustee.
"All funds received by defendants were inextricably intertwined with the Ponzi scheme and were derived from monies fraudulently obtained," according to the Arrowhead complaint.
Basically the money that Petters transferred to Arrowhead and other investment firms is considered fraudulent conveyance because the money came from a Ponzi scheme. Also, the bankruptcy trustee felt that because the investment firms are in the business of investing, they should have known that the money was not "clean" and that it may have come from a fraudulent scheme. The bankruptcy trustee also argues that if the investment firms did not know the money was from a fraudulent scheme, then they failed to do their due diligence in making sure that the money was not gained via illicit means. The Arrowhead lawsuit is the largest suit to come out of the Petters' bankruptcy. Yesterday, the Petters Group bankruptcy trustee sued the Houston-based firm, Ark Royal Capital LLC, in an attempt to recoup $1.2 million for the bankruptcy estate.