Jury awards $3.5M in first Petters clawback trial.

Byline: Barbara L. Jones

It only took a few hours for a federal jury to hand down a verdict of more than $3.5 million in the first trial of a clawback case arising from the Tom Petters Ponzi scheme.

Petters' massive fraud caused over $3.5 billion in losses and resulted in a tsunami of civil actions to recover funds, as well as criminal prosecution of Petters and other associates. Petters is serving a 50-year sentence in the federal penitentiary in Leavenworth, Kansas. Petters and his co-conspirators sought investors funds to purchase electronic goods, although they actually used the funds of later investors to pay earlier investors.

The plaintiff is the liquidating trustee for the PCI Liquidating Trust, Minneapolis attorney Douglas A. Kelley, represented by a team from Dorsey & Whitney. The total verdict, including prejudgment interests, was $3,502,455, about $360,000 more than the complaint demanded.

Petters Co. Inc., filed for bankruptcy in 2008, and the clawback claims began as adversary proceedings in bankruptcy court, to recover profits that the early investors took out of the scheme and which were paid from fraud, said Dorsey attorney J Jackson. The recovered funds will be redistributed to the later investors, who received little or no return on their money.

The defendant is Gus Boosalis, an early investor who, the government says, was paid at least $3,134,590 in "purported interest" on promissory notes issued to him by Petters Co. Inc. The claim against Boosalis is that the payments violated the Minnesota Uniform Fraudulent Transfer Act, Minn. Stat. secs. 513.41-51, in that they were funded with stolen money, made with actual intent to defraud PCI's creditors, made when PCI was insolvent, and not given for an exchange of reasonably equivalent value.

According to court filings, the evidence showed that Boosalis engaged in at least 65 promissory note transactions with PCI with interest rates ranging from 38.7 percent to 70.8 percent on an annualized basis. The trustee did not seek any return of principal paid to Boosalis.

Transfer by transfer

Kelley presented direct evidence of Petters' fraud and also showed "a confluence of badges of fraud that compels a finding of fraudulent intent," according to a trial brief. Those badges included the existence of a Ponzi scheme, felony guilty pleas, irregularities in record keeping, and the transferor's insolvency.

The trial addressed the interaction of the MUFTA with the factual context of a...