Lawyers and accountants clean up in Petters case

How much longer will the case of Wayzata businessman Tom Petters drag through the federal courts? Many months for sure, probably a year, possibly more.

But one thing is certain, the work of untangling Petters' business affairs promises steady paychecks to lawyers and other professionals for however long the case sticks around.

More than $12 million has been paid to law firms and accounting firms in the 16 months since Petters was arrested and his corporate empire was put in receivership.

Petters' unsuccessful criminal defense alone exceeded $3 million in fees and costs, according to court records. He awaits sentencing, and an expected appeal, in the $3.65 billion Ponzi scheme that defrauded scores of investors.

His criminal legal fees have been covered by a corporate insurance policy, but other professional expenses have been paid out of the pool of assets recovered on behalf of creditors and investors.

Legal fees for Petters' four co-defendants, all of whom pleaded guilty early on to various fraud and money-laundering charges, stand at $657,000.

In addition, legal fees for Frank Vennes, a heavy investor in the Ponzi scheme, are at $884,000 even though Vennes was not charged. Fees incurred by the receiver who is liquidating the Vennes estate are another $580,000 and rising.

On Monday, a request for another $485,000 in fees will be before U.S. District Judge Ann Montgomery who is overseeing the Petters and Vennes receiverships.

The fees, all of which are reviewed by Montgomery, have gone largely unchallenged.

Court filings show the billing rates for top corporate and criminal attorneys in the Twin Cities. Attorney Doug Kelley, the Petters receiver, bills at $475 an hour while his partner, Steve Wolter, bills at $400 an hour. Petters defense attorney Jon Hopeman charged $450 an hour. Andy Luger, who represents co-defendant James Wehmhoff, bills at $550 an hour. Even at a reduced rate, executives with FTI Consulting, retained by Kelley, charged rates ranging from $385 to $715 an hour for professional services.

Attorneys from the U.S. attorney's office monitor each fee hearing to ensure that funds are left over for creditors and victims of the fraud.

One of the major Petters investors, Ritchie Capital Management, also sends attorneys to the hearings. Their general objections to the fees have resulted in more detailed statements to show which attorneys are billing what hours.

Montgomery has warned lawyers about excessive fees and has occasionally reduced some of the bills if she determined some charges were not supported in the billing statements.

"Undoubtedly this is a lot of money, no doubt about that," said Vennes receiver Gary Hansen. "But it's par for the course. I've got six or seven lawsuits in front of me. I'm dealing with the sale of office buildings and rental property [owned by Vennes] in five different states."

In a recent report to Montgomery, Hansen said he has obtained more than $7 million in assets held by Vennes.

Kelley said the corporate books for the myriad Petters companies were a mess when he took over as receiver.

"There were over $40 billion in inter-company transfers that we had to sort out. We spent $1.5 million on forensic accounting, another $500,000 to prepare and file 380 federal, state and foreign tax returns," Kelley said. "We're doing pretty good."

Kelley said his team of attorneys, accountants and business consultants recovered nearly $200 million through that sale of personal and corporate assets, including homes, cars and companies such as Polaroid Corp.

Kelley said "the big dollars" have yet to be collected as his team prepares a series of "clawback" actions to obtain profits that early investors made at the expense of later investors.

The fees for Petters' criminal defense case are being reimbursed through a directors and officers insurance policy held by one of the Petters business entities. Kelley said he has received $2.5 million of the $3.3 million bill from the insurer and is confident he will get the remainder. What is unclear, however, is whether the insurer will cover the cost of an appeal, which Petters' attorneys have said they intend to file.

Fees for the other Petters defendants are paid out of accounts set up to collect their assets.

Ted Sampsell-Jones, a law professor at William Mitchell College of Law who followed the Petters criminal case, said the $3.3 million tab for the defense may seem like a lot but in reality is reasonable for a case involving a $3.65 billion fraud.

"It's not out of the ballpark. It's a big case with a lot of documents and a lot of lawyers working on it," Sampsell-Jones said. "Those [expense] numbers get big pretty fast."

Hopeman, the lead attorney on a Petters defense team that included four other attorneys and several financial analysts and investigators, called the case "highly complex" with thousands of documents and records to review.

Hopeman compared the Petters case to the criminal case stemming from the $1.2 billion Midwest Federal bank failure that he prosecuted as an assistant U.S. attorney nearly 20 years ago except "the volume of documents in any one case is now ten to 100 times what it was 20 years ago" because of computer storage technology.

David Phelps • 612-673-7269