Repo Man

Lawyer Doug Kelley thinks Wall Street knew Tom Petters was a fraud but failed to blow the whistle. So now he’s suing several big banks, hoping to claw back millions for the victims of Petters’s Ponzi scheme.

On the desk in Doug Kelley’s window-lined office—some 25 stories above the streets of downtown Minneapolis—sits a scale replica of a Sun Country airliner, frozen in mid-takeoff. Tilted skyward, the jet appears ready to fly out over the office towers and condos, past the bridges and churches on the city’s edge, beyond the horizon.

The plane is one of several tchotchkes gleaned from the ruins of Tom Petters’s corporate empire. Two years ago, shortly after the Minnetonka businessman and philanthropist was charged with running a massive Ponzi scheme, a federal judge tasked Kelley with cleaning up the business end of the fraud. Since then, Kelley’s law office has become a depository for swag that once littered the headquarters of Petters Group Worldwide, the erstwhile owner of Sun Country airlines. Did the model jet get such a prominent place on the original owner’s credenza?

Normally, when a company files for bankruptcy, tracking the legal fallout is about as fascinating as watching paint dry. The courts appoint someone to figure out what assets are left and then divide them among the business’s vendors and investors. Reams of legalese spell out the pecking order for the payouts, so there’s rarely any drama.

Kelley’s work, however, has been anything but routine. For 14 years, Petters and a handful of associates cajoled a slew of people into financing fake deals involving non-existent high-end electronics. The amounts got bigger and bigger as the fraud went undetected, and by the time Petters was unmasked, the list of investors he had bamboozled included not just friends and fellow entrepreneurs but also high-flying hedge funds and national banks.

Kelley’s job, like the court-appointed trustees and receivers in the cases of Bernie Madoff, Allen Stanford, and the other fraudsters of recent infamy, is to figure out where victims’ money went, get it back, and see that as much as possible is returned to those defrauded. To that end, Kelley’s associates and assistants down the hall are pounding the phones, trying to sell the spoils seized from Petters and his cronies—the condos in Costa Rica and Colorado, the Rolexes and Elsa Peretti necklaces, the Bentleys and the Mercedes.

The scope boggles the mind. “We own part of the Jamaican lottery. We own part of Charlie Chaplin’s estate in Switzerland,” Kelley says with a laugh. “Bernie Madoff’s lawyers have said to me, ‘Our [case] involves more money, but yours is infinitely more complex.’”

While teasing out the legitimate business from the larger fabric of fraudulent activity, Kelley has gotten to know Petters’s dealings intimately. And as he’s studied years of transactions, he’s come to believe he can prove what many people have speculated: There is no way the size of the Ponzi scheme could have swollen to $3.5 billion without Wall Street’s quiet complicity.

Kelley was a Green Beret during the Vietnam era. He has prosecuted mobsters under threat of a mafia hit. He ran for governor as a Republican in 1990, and later, as head of the Minnesota’s Campaign Finance and Public Disclosure Board, he called foul on fellow GOP member Tim Pawlenty for fundraising violations. In short, he’s no stranger to betting the farm.

Even so, in recent weeks, Kelley stepped even further out on a high wire than ever before: He sued some of the nation’s largest mainstream banks, including JPMorgan Chase, charging them with knowingly participating in Petters’s fraud. He plans to prove that the same fast-and-loose Wall Street climate that caused the larger market meltdown led some of the biggest names in high finance to turn a blind eye to the biggest financial fraud in Minnesota history.

“When everyone was making money, they were able to turn their head aside and not ask the questions that normally people would ask,” Kelley says. “The Petters case is an insight into the morality in this country.”

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