New York (HedgeCo.Net) – Petters Group Worldwide has filed for Chapter 11 bankruptcy protection after feds launched a probe into an alleged $3 billion scam that was said to be orchestrated by the founder. The subsidiary company under investigation is Petters Co. Inc., a Minneapolis-based venture capital firm.
In a ponzi-like scheme, Tom Petters allegedly used new money brought in by investors to fund his lavish lifestyle by creating false retail transactions.
The company has not made any comments on the pending fraud case, only that filing for bankruptcy was “in the best interest” of the business and that the receiver will “assess the business and develop plans for them that best serve the interests of their creditors, employees, suppliers and customers.”
In addition to the federal probe, PCI also has big-time Chicago hedge fund Ritchie Capital Management to deal with. Ritchie has claimed that it lost $275 million as a result of the scam, and they want that money back.
However, there is some question as to whether Minnesota or Illinois should have jurisdiction regarding the Ritchie case. R.J. Zayed, the attorney representing Ritchie, wants the matter handled in Illinois court, saying, "We’re not just creditors, we’re victims of fraud."
This is the second fraud-related scheme that Ritchie Capital has found itself in the middle of as of late. The fund had recently purchased several hundred million dollars of life insurance from Coventry First, a Pennsylvania-based life insurance company. It was eventually found out that Coventry was defrauding clients out of millions of dollars by paying insurance brokers to suppress competitive bids.
Tom Petters was arrested earlier this month with charges of money laundering, wire fraud, mail fraud and obstruction of justice. He was denied bail.
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