The Minnesota Supreme Court recently issued an opinion overturning a legal presumption that permitted victims of financial fraud to forego evidentiary requirements under the Minnesota Uniform Fraudulent Transfer Act (MUFTA) in cases involving Ponzi schemes. As a result, the ruling calls into question the potential recovery of more than $1 billion in alleged false profits from those with relationships to Tom Petters, the mastermind of one of the largest financial frauds in U.S. history, second only to Bernie Madoff.
In 2010, Petters—a prominent Minnesota businessman and CEO of Petters Group Worldwide, a holding company with diverse assets that included Sun Country Airlines and Polaroid—was convicted on counts of fraud, conspiracy, and money laundering in connection with a $3.65 billion Ponzi scheme. Prior to Petters’s conviction, the U.S. Bankruptcy Court for the District of Minnesota appointed a bankruptcy trustee who proceeded to file more than 200 clawback suits against lenders and others in order recoup assets under MUFTA and other available claims.
Prior to the recent ruling, Minnesota courts applied a “Ponzi scheme presumption” to financial transfers between the perpetrator of the Ponzi scheme and beneficiaries of the fraud. As such, those transfers were deemed fraudulent on their face, without a trustee or receiver bearing the evidentiary burden of proving involvement by each individual beneficiary of a fraudulent transfer. Continue Reading