Blog Viewer

Eighth Circuit Affirmed Dismissal of Complaint by Creditor in Petters Ponzi Scheme

By David Tanabe posted 10-31-2022 15:58



In Ritchie Special Credit Investments, Ltd. v. JPMorgan Chase & Co., 48 F.4th 896 (8th Cir. Sept. 13, 2022), the Eighth Circuit affirmed the dismissal of the complaint based on lack of standing and failure to state a plausible claim against a creditor and consulting firm in the Petters Ponzi scheme.

Plaintiff Ritchie Special Credit Investments, Ltd. (“Ritchie”) made investments that were lost in the Petters Ponzi scheme. The trustees in the Petters bankruptcy reached a settlement for Defendant JP Morgan Chase & Co. (“JP Morgan”) to repay some of what it collected during the waning days of the Petters fraud. The settlement included bar orders that prohibited creditors from asserting certain claims that belonged to the bankruptcy trustees.

Despite the bar orders, Ritchie brought the present action on the principal theory that the defendants aided and abetted the fraud by Petters; or in the alternative, the transfers to JP Morgan were fraudulent. The district court dismissed the complaint.

In the appeal, the Eighth Circuit held that Ritchie lacked standing to assert claims against JP Morgan because the causes of action belong to the bankruptcy trustees to assert. In its decision, the Eighth Circuit noted that the debtor could have asserted the claims against JP Morgan before the bankruptcy. As such, the claims belonged to the bankruptcy trustees based on the general bankruptcy-standing doctrine and the bar orders.

The Eighth Circuit also affirmed the dismissal of the aiding and abetting claim against Defendant Richter Consulting, Inc. (“Richter”) for failure to state a plausible claim. Richie’s complaint alleged that Richter misled through due-diligence documents. Nevertheless, the Eighth Circuit noted that Ritchie’s complaint failed to allege enough facts for the element of aiding and abetting under New York law that Richter had “actual knowledge” that Petters himself was engaged in fraud. Rather, the Eighth Circuit found there was no more than constructive knowledge of inflated accounts-receivable figures, sham loans, and financial trouble for the legitimate company Polaroid Corporation. 

The Eighth Circuit affirmed the judgment of the district court.


Co-Editors in Chief
Karl J. JohnsonTaft Stettinius & Hollister LLP
David M. TanabeWinthrop & Weinstine, P.A.