US appeals court overturns $564 million verdict against Bank of Montreal in Ponzi case By Reuters
Written by Jonathan Stempel
(Reuters) – A Montreal bank urged a U.S. appeals court on Thursday to enter a $564 million judgment against a subsidiary for its role in an estimated $3.65 billion Ponzi scheme run by convicted Minnesota businessman Tom Petters.
Citing a similar case involving Bernard Madoff, the 8th US Circuit Court said that the court-appointed trustee of Petters Co, which is now bankrupt, cannot recover money from creditors because that company helped in the fraud.
The 3-0 decision of the St. Paul, Minnesota overturned the jury’s November 2022 decision, and ordered that the Douglas Kelley trust’s lawsuit against BMO be dismissed.
Attorneys for the trustee did not immediately respond to requests for comment.
BMO said it was pleased with the decision. It expects to reverse a C$1.19 billion loss provision including litigation interest, resulting in a fourth-quarter after-tax profit of C$875 million (US$644 million) for its business services business.
Petters, 67, is serving 50 years in prison after being convicted in 2009 of 20 counts including fraud and money laundering.
Kelley said Petters’ former bank, Milwaukee-based Marshall & Ilsley, knew about the Ponzi scheme and ignored red flags of money laundering, allowing Petters to withdraw large sums of money he shouldn’t have earned.
BMO bought M&I in 2011, and Kelley wanted to hold it accountable.
But the appeals court said the trustee was standing in Petters Co’s shoes because that company was equally or more at fault than M&I.
That said, BMO was not guilty under a legal doctrine known as “in pari delicto.”
“The bankruptcy code does not provide a vehicle for PCI or its trustee to continue to be held harmless for PCI’s wrongdoing,” Chief Judge Steven Colloton wrote, referring to Petters Co.
Colloton cited a similar 2013 ruling by a New York appeals court that dismissed claims that a trustee foreclosing on Bernard L. Madoff Investment Securities made against JPMorgan Chase (NYSE: ) and other banks used by Madoff.
The case is Kelley v BMO Harris Bank NA, US 8th Circuit Court of Appeals, No. 23-2551.
(US$1 = C$1.358)
