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Home team bias in local press coverage of the Thomas Petters cases
by Brenda Grantland 1-2-2011, updated 1-26-2011
(c) 2011, Brenda Grantland, Esq.
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The Thomas Petters fraud scheme litigation has been a big story in the
Minnesota press for the
past two years, providing almost daily fodder for the local news media.
The Petters Receivership and related bankruptcy cases are big
money-makers for Minneapolis-St. Paul area law firms,
a
boon to the local economy during the recession, especially after
Petters empire imploded, losing many local jobs. Quite understandably,
the
Petters Receivers and Trustees and prosecutors were treated as heroes
by the local media. Petters' victims (most of whom were from out of state) did not fare so well - in the
courts or in the local media. The local press rarely covered the
travails of the
victims and creditors who sought (and were denied) relief from the
receivership litigation stay, or who tried to assert their statutory
rights as
crime victims in the criminal litigation and were rebuffed at every
turn.
For the past year and a half years I have represented Ritchie
Capital
Management ("Ritchie"), a Petters victim, in the receivership and
criminal restitution litigation. I was generally disappointed with the coverage
(or lack thereof) of victims' issues by the Minnesota press,
but its recent coverage of Ritchie's restitution
litigation really showed the local media's true colors.
On December 1, 2010 Ritchie
filed a certiorari petition to the United States Supreme Court, Ritchie Special Credit Investments, Ltd., et al., Petitioners v. Thomas Petters, et al.,
# 10-738,
seeking review of the Petters' criminal judge's orders denying
restitution to victims, and the Eighth Circuit's dismissal, without
written opinions or any statement of reasons, of Ritchie's mandamus
petitions. The certiorari
petition was the culmination of months of litigation under the Crime Victims Rights Act of 2004 and the Mandatory Victim Restitution Act of 1996,
two statutes which gave victims actual enforceable rights in the
criminal process that they never had before. In Petters' criminal case
when the criminal judge denied victims their CVRA and MVRA
rights, Ritchie filed four petitions for mandamus [1/]
in the federal
Court of Appeals for the Eighth Circuit. Without even requiring
the government to respond on the merits to Ritchie's claims of CVRA and
MVRA violations, the Eighth Circuit dismissed every one of Ritchie's
mandamus petitions, without a written opinion or any statement of
reasons. That in itself is a violation of the CVRA, which specificially
requires a written opinion detailing the reasons if the court of
appeals denies the victim's petition. The press did not cover
Ritchie's CVRA and MVRA litigation in the district court or Eighth
Circuit.
Ritchie's filing of the certiorari petition spontaneously began
generating press coverage. Ritchie decided to put out a press release
explaining what our certiorari petition was all about, with a link to the petition itself.
The press release was picked up and distributed on the PR Newswire. A few days later I got a call from John Welbes, a reporter at St. Paul, Minnesota's
Pioneer Press. Though disappointed in the past by the local media
coverage, I took the call and answered his questions. I was on
the phone with Welbes for quite some time, explaining at length
the issues raised in our petition. I explained that the Mandatory Victim Restitution Act requires a criminal court
judge, when sentencing a criminal defendant convicted of fraud, to
enter restitution judgments against the defendants in favor of all
"direct and proximate" victims in the full amount of their
losses. The narrow exception [2/] the criminal judge cited, the "complexity exception," allows criminal judges to avoid determining restitution if the court finds, from facts in the
record, that the burden on the sentencing process of determining
restitution outweighs the harm to victims of denying restitution. I pointed out that the reason the judge stated in denying restitution -- that victims had other remedies they could pursue
-- was not a reason listed in the MVRA's "complexity exception".
In fact, the judge's reliance on the availability of other remedies
conflicted with a provision of the MVRA's procedural statute, which
prohibits the court from considering the victim's entitlement to
compensation from other sources in determining the amount of restitution.
Currently the courts are split on whether the availability of other
remedies may be considered in weighing the factors of the complexity
exception.
When the article, "Ritchie Capital Goes To High Court", appeared in the St. Paul, Minnesota, Pioneer Press
on 12/16/2010,
it made no mention
of the Mandatory Victim Restitution Act. Instead of explaining that
Ritchie's petition involved litigation under a criminal statute, the
article made it appear that this was just some argument Ritchie had
made
up in a bankruptcy case. The article even went so far as to quote
a
"bankruptcy expert" who pooh-poohed Ritchie's certiorari petition:
Ritchie's "chances are slim," said David Leibowitz, a Chicago attorney
and bankruptcy expert who hasn't worked on the Petters case. He said
there isn't a "big split" in rulings from various courts of appeals
around the country on restitution cases and that Ritchie could appear
to be asking for an unequal distribution of assets, favoring itself over other creditors.
"I don't think this (Supreme Court case) is going to get them anywhere," he said.
Dismayed by the reporter's mangled description of our case and his
expert's criticism of our argument, I emailed David Leibowitz to see
what his qualifications were regarding the MVRA:
Mr. Leibowitz -
I saw your quote in a news article, and I was wondering what your
experience is in criminal restitution matters? Have you represented
victims in criminal cases when they file claims under the Mandatory
Victims Restitution Act?
Brenda Grantland
He promptly responded with this email:
Thanks for your inquiry. I have little to no experience
with criminal restitution. If you want, I'll try to find someone for
you who does. Where do you live?
Kind regards,
David Leibowitz
I then wrote him back to ask why he thought he had sufficient expertise on criminal restitution under the MVRA to criticize our
certiorari petition (which did not involve bankruptcy law at all) and why he made the unkind (and untrue) suggestion
that Ritchie was trying to get an unequal share of the assets. (Read entire message here.)
Leibowitz immediately wrote me back:
I am a bankruptcy expert and my opinion is rendered in that context.
Best wishes
David LeibowitzLakelaw Waukegan - Chicago - Kenosha Sent from my iPhone
There was no bankruptcy context. Our certiorari
petition
and all the litigation that led up to it all happened in criminal
court, under crime victims' rights statutes in the criminal code
(title 18 U.S.Code). Leibowitz
was stating an
opinion on something he admittedly knew nothing about. And he
never
explained the basis for his gratuitous slur that Ritchie appeared to be
trying to gain an advantage over other creditors.
I cc'd John Welbes but he never responded to my email. Apparently he sees
nothing wrong with attacking those who criticize the "home team" by
calling in "experts" with no expertise on the subject matter on which
they render opinions. I recommend that all
readers of his articles take everything Welbes says with a grain of
salt,
especially when he quotes "experts."
# # #
Not to be outdone by the Pioneer Press, Twin Cities Business
Magazine reporter Jake Anderson wrote a similarly skewed and mangled
piece of journalism -- "Petters Investor Petitions Supreme Court" -- without
speaking to anyone representing Ritchie, and apparently without
bothering to read our certiorari petition. The Twin Cities
Business article begins with a subtitle in bold proclaiming:
Ritchie Capital Management says that it and other
victims of Tom Petters’ Ponzi scheme have been denied restitution by
the courts. A local expert said that there are “sufficient
mechanisms” in place for creditors to recover valid claims."
Ritchie "says it and other victims... were denied
restitution? It's not a matter of interpretation. Here are the
orders denying restitution, entered by Judge Kyle on June 3, June 4 and July 2. Here is the transcript in which Judge Kyle orally denied our motion to vacate his orders denying restitution.
The Twin Cities article completely botches the issues in Ritchie's certiorari petition:
Ritchie claims that the Mandatory Victim Restitution Act of 1996
dictates that it should be awarded restitution for its losses by suing
Petters' companies directly, ...
Completely wrong. The MVRA dictates that the sentencing judge award restitution to fraud victims without requiring victims to sue the defendant.
... but the courts ruled that victims must
recover funds through other means—namely, by filing claims in the
Petters bankruptcy case and receiving assets when they are doled out by
Doug Kelley, the receiver in the case.
That is not correct either. The criminal judge declined to award
MVRA restitution against Petters and his codefendants, citing the complexity exception,
but relying on a reason not included in the complexity exception -- the fact that
victims might qualify for some compensation from the pending bankruptcy
cases of Petters' companies. The article fails to explain that there are several pools of assets
that were seized from the defendants. The bankruptcy cases only
involve some of Petters' companies. None of the individual defendants declared
personal bankruptcy (nor could they be forced into bankruptcy by
victims or creditors, because the receivership litigation stay prohibited all lawsuits against the defendants).
All of the personal assets of the co-defendants, totalling $10 - $50
million, are in the hands of the receiver Douglas Kelley. This money
would have been be distributed pro rata to the victims as part of the sentencing process in the criminal cases (see Doc. 393 p. 3), but the judge
denied restitution to the victims.
Mertz is also wrong in his suggestion that Receiver Doug Kelley will be
doling out funds to victims. There is no
statutory
mechanism in 18 U.S.C. § 1345 which allows the Receiver to dole out anything to
victims. If the orders denying restitution are upheld, those funds held by the receiver will be forfeited to
the
federal government. Judge Kyle said
victims were free to ask the
federal government to give them some of the assets through the DOJ
remission program, but that is a completely discretionary remedy,
decided by the Chief of the Asset Forfeiture and Money Laundering
Division of the DOJ, without a hearing, without a judge, and with
victims having no right to appeal to any court if the Asset Forfeiture
Chief turns them down. The
Chief of AFMLS has already indicated that they intend to distribute the "net
proceeds" to "qualified victims" -- obviously meaning what's left after law enforcement agencies are paid.
Regulations governing the remission process do not have the same
standards for "qualified victims" as the MVRA standards defining
"victims" as those "directly and proximately" harmed by the crimes for
which each defendant is convicted.
Once again, the local press brought in "a local expert" to contradict
Ritchie's arguments. Like the Pioneer Press's expert, Mertz also
appears to be a bankruptcy lawyer, since he says there are sufficient
mechanisms in place for "creditors" -- a term used in bankruptcy cases,
but not in criminal restitution cases. Although there is
some overlap, creditors of the various corporate bankruptcy cases are
not the same group of folks as the "direct and proximate" victims of
Petters' and his codefendants' crimes -- who are entitled to
criminal restitution under the MVRA. The rights of bankruptcy creditors and
crime victims are very different, and they are enforced in different courts. Ritchie will hopefully receive some
compensation some day from the bankruptcy cases as creditors of some of
the Petters' companies, but that's not the same thing as criminal
restitution judgments. [3/] Defendants convicted of fraud are personally liable
under the MVRA for
the full amount of their victims' losses "directly and proximately" caused by the fraud, and MVRA restitution judgments are
enforceable for 20 years, against assets the defendants obtain in the
future.
Mertz ... said that, in his opinion, there are “sufficient mechanisms” put in
place for creditors of the various Petters entities to recover valid
claims from the bankruptcy case and the receivership. “It’s whether
claims are valid” that will be difficult to determine, and Kelley has
previously objected to some of Ritchie’s claims, he added.
True, there are the regular bankruptcy mechanisms that victims of
Petters' fraud can pursue in a bankruptcy cases if they are creditors
of one of the bankrupt companies. But Mertz is wrong in
suggesting there is a mechanism by
which victims can file claims with Receiver Doug Kelley and
get compensation from the $10 - $50 million in personal assets of the
defendants held by Kelley's receivership. The receivership case
was
brought under a criminal statute -- 18 U.S.C. § 1345 -- which only empowers the Receiver, Doug Kelley to
"hold assets in place" (see Order, PCI bankruptcy Doc. 153
p. 22) until they are distributed by order of the criminal judge
in restitution and/or forfeiture. Section 1345 does not allow the
Receiver to decide claims or distribute the assets to fraud
victims. When Mertz says Kelley has objected
to some of Ritchie's claims, he is probably referring to the Polaroid
bankruptcy
case, where Kelley objected to Ritchie's claim as a secured creditor of Polaroid, as opposed to an unsecured creditor
-- because Ritchie's liens were perfected less than 90 days before
Polaroid declared bankruptcy. This avoidance action brought in
the Polaroid
bankruptcy case has nothing to do with Ritchie's right to
restitution under the MVRA. There is no dispute that Ritchie's
restitution
claims are valid. The government recognized Ritchie as a victim
of the fraud and correctly stated Ritchie's losses in its Final Proposed Restitution Order, Exhibit 1.
PricewaterhouseCoopers' report (p. 11) came up with the same figure for Ritchie's net losses as the government's figure (see Doc. 456-1 p. 10) -- $165,294,491.
And who is this "local expert"? The article says Steve Mertz is
"a partner in Faegre
& Benson’s finance and restructuring practice" ... "whose firm
represents some creditors and defendants in clawback suits related to
the Petters case." Mertz and his firm, Faegre & Benson, played prominent roles in the Polaroid bankruptcy case, first as
counsel to the Committee of Unsecured Creditors, when Polaroid was in
chapter 11 bankruptcy. After it was converted to chapter 7
bankruptcy and John Stoebner was appointed trustee for Polaroid,
Stoebner had Faegre & Benson appointed special counsel to the Trustee. Steve Mertz served in that capacity when the Trustee helped negotiate the coordination agreement,
which funnelled the assets held by the Petters receivership to the
federal government while carving out the bankruptcy estates of the
Petters companies to be separately administered by the bankruptcy
courts. Ritchie objected to the coordination agreement.
Steve Mertz ranked near the top of the List of High Billers in the Polaroid Bankruptcy case for 2009, billing the Polaroid bankruptcy estate $605 per hour for his services to the committee for unsecured creditors. His 2010 rates went up to $625 per hour. Faegre & Benson has been paid a total of $ 288,012.81 so far from the Polaroid bankruptcy estate. (No creditors have been paid anything yet.)
Faegre & Benson also represents Frank Vennes, who was implicated as
a co-conspirator in the Petters fraud scheme (see Rice affidavit p. 10, 14-16), but was never
indicted. His assets and the assets of his companies -- including Metro
Gem and Metro Gold -- were restrained in the same § 1345 civil injunction and
receivership action as Petters' assets (only with a different
Receiver, Gary Hansen). Like Petters (see p. 18), Vennes and Metro Gem were given a
litigation stay (see p. 13) preventing victims and
creditors from suing them. Frank Vennes' investment
funds netted profits from the Petters scheme, according to the government's Final Proposed Restitution Order (see p. 6), and they are now the target of a clawback suit brought by Doug Kelley (in his role as PCI-PGW bankruptcy trustee) seeking $2,348,317,000 ($2.3 billion). Under a settlement plan proposed by Vennes and his Receiver, Gary Hansen, and supported by the federal government
(go figure!), Vennes proposed to distribute ALL of the restrained
assets held by the Metro Gem Receiver to Metro Gem's own investors -- some of whom netted profits from
Metro Gem -- with nary a penny to Petters' direct victims whose money was
funnelled to Metro Gem. PCI bankruptcy trustee Doug Kelley
objected to the Vennes' plan, saying the Vennes defendants are the
second or third largest winner from the Petters scheme, having raked in
"$204 million [in] false profits and commissions," and that some of the
Metro Gem assets should be clawed back to the PCI/PGW bankruptcy
estates. See objection p. 3.
[Update: On
January 26, Judge Montgomery approved the proposed settlement, but
withheld 20% of the assets pending resolution of the clawback claims.]
The article says Faegre & Benson represents "some creditors
and defendants in clawback suits" in the related bankruptcy
cases, but doesn't say who they are. We found a few. In
addition to Frank Vennes/Metro Gem (both clawback defendants in the
PCI/PGW bankruptcy) Steve Mertz/Faegre & Benson also represent
General Electric Capital, in a PCI clawback suit seeking $293,464,000. The complaint in the GE Capital clawback suit
alleges on page 14 that "[t]estimony of GE Capital employees, Jack F.
Morrone and Paul Feehan, from the criminal trial of Petters shows that
GE Capital had actual knowledge regarding the fraudulent scheme and
wrongdoing, prior to the transfer of more than $48,000,000 to GE
Capital, including knowledge of forged and fraudulent purchase orders
and checks by PCI and Petters Capital, Inc."
Steve Mertz/Faegre & Benson also
represent Sun Minnesota Foreign Holdings, LLC, Sun Minnesota Domestic
Holdings, LLC, Sun Credit, LLC and Whitebox Advisors LLC in a $ 4,047,000 clawback suit brought by the Committee for Unsecured Creditors in the Sun Country Airlines bankruptcy case. The clawback complaint alleges
"the Defendants were a large investor group who exerted substantial
influence over Petters and his companies in order to extract value from
the Debtor and MN Holdings in an exit from the Defendants’ investments
in the Debtor." (See clawback complaint p. 5).
As entities that
netted profits from Petters' fraud scheme, the Vennes defendants, GE
Capital
and the Sun Minnesota/ Whitebox entities are natural adversaries of Petters' direct victims who sought MVRA
restitution and filed bankruptcy claims to recoup some of their net losses.
So it is easy to see the reason for his bias, but what exactly is Steve Mertz's expertise that qualifies him as
an expert in crime victims rights and restitution? "He practices
in the areas of bankruptcy, business reorganization and commercial
finance," according to the Faegre & Benson's website. Apparently, he is no more an expert on criminal restitution or crime victims rights than Leibowitz was.
Brenda
_____________________
1/ Mandamus is an ancient but rarely used "writ" to command a public
official to do his duties as the law commands. When Congress enacted
the CVRA, it made the new rights enforceable by victims by including a provision
allowing crime victims to obtain appellate review of decisions denying
victims their rights under the statute by filing petitions for writ of mandamus.
We had to file four separate petitions for mandamus because CVRA
requires them to be filed within 14 days after the order is entered
denying the right protected by the CVRA (in our case, the right to
"full and timely restitution"), and Judge Kyle issued four separate
orders. See Mandamus #1, #2, #3, #4.
2/ There are two exceptions to the MVRA, allowing the judge to decline to award mandatory restitution: (1) when the number of identifiable victims is too numerous and (2) under the "complexity exception"
balancing test which Judge Kyle cited. Courts have imposed MVRA
restitution in cases involving 10,000 victims, so the handful of direct
victims here would not qualify under the first exception.
3/ The
MVRA prohibits a sentencing judge from taking into consideration a
victim's entitlement to compensation from "any other source" in setting
the amount of restitution. But after a restitution judgment is entered, the
defendant is entitled to credits against a restitution judgment for any
amounts recovered by the victims for the same losses from civil
litigation, which would include bankruptcy payments to victims.
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