BMO ordered to pay $563 million for Petters fraud;  it is the biggest financial penalty by a jury in Minnesota

BMO ordered to pay $563 million for Petters fraud; it is the biggest financial penalty by a jury in Minnesota

BMO Financial Group must pay the trustees in bankruptcy of Tom Petters $563.7 million in damages for a predecessor bank’s role in the Minnesota businessman’s multi-billion dollar fraud, says a federal jury in St. Paul on Tuesday.

The judgment is believed to be the largest financial penalty ever handed down by a jury in a Minnesota courtroom, attorneys said. It is also the largest single verdict or settlement related to Petters’ fraud, which was the largest in Minnesota history.

“Today is a good day. It’s a fantastic result,” said Michael Collyard of Robins Kaplan, the Minneapolis law firm representing Doug Kelley, court-appointed receiver in the bankruptcy that followed the collapse. of the Petters fraud scheme in 2008.

Kelley attempted to recover approximately $3.7 billion lost in the Petters fraud. In the BMO case, his attorneys asked the jury for a $1.9 billion fine.

“This money will go to estate creditors and significantly improve their recoveries,” Kelley said.

BMO said Tuesday evening that it would appeal the verdict and the penalty. “We are satisfied that we have strong grounds for appeal,” the company said.

When prejudgment interest is added, dating back to when the case was filed in 2012, BMO could be liable for around $1 billion. The Montreal-based company said it would immediately set aside C$1.12 billion and post its fourth quarter results in accordance with accounting standards.

The jury found BMO responsible for the shares of Milwaukee-based Marshall & Ilsley Bank, which it acquired in 2011. From around 2002 to 2008, Petters moved about $37 billion through a small business checking account into a M&I branch in Edina.

Petters is serving a 50-year prison sentence for an elaborate Ponzi scheme that defrauded hundreds of people.

Evidence from the month-long trial showed the Petters account repeatedly raised the bank’s internal alarm over money laundering activity over 39 months, but bankers failed to notify regulators.

“If they had reported this to the feds, I believe the FBI would have investigated and shut down Petters’ Ponzi scheme immediately,” Kelley said. “If the bank had whistled, it might have stopped it dead.”

The FBI raided Petters’ Minnetonka office just weeks after his business partner reported the fraud in 2008.

In the scheme, Petters convinced investors that he was financing the purchase of consumer electronics which he would then resell to retailers. But he used money from new investors to pay off old ones.

The case involving BMO was complicated by the scale of the fraud and the difficulty of processing documents and digital evidence dating back to the mid-1990s. In 2019, a bankruptcy judge sanctioned BMO for destroying emails and documents. Other Data Related to M&I’s Interactions with Petters.

In the trial that began last month before U.S. District Judge Wilhelmina Wright, both sides called about two dozen witnesses, including former M&I bankers. The 11-person jury took up the case on Friday afternoon and returned a verdict by mid-morning Tuesday.

The jury found BMO not liable on three of the four counts. But he concluded that the bank was liable “for aiding and abetting the breach of a fiduciary duty”.

Kelley said he thought the count would be “most defensible” on appeal.

“When they came back with that verdict, we felt very, very good,” he said. “Of course, there are many, many decisions that are made during a trial that the other side can point to, but we think this is a solid verdict.”

After being named receiver in the Petters bankruptcy, Kelley placed several of Petters’ largest business entities into bankruptcy, including Sun Country Airlines and Polaroid Corp. He also liquidated assets and filed several “recovery” lawsuits against hedge funds that profited from Petters’ crimes. .

In July 2021, a federal judge ended the receivership and discharged $722 million that Kelley had so far recovered on behalf of Petters’ victims and creditors.

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