Twin Cities Business Litigation Blog : Minneapolis Business Litigation Lawyer & Attorney : Gavin P. Craig Law Firm : St. Paul, Twin Cities, Minnesota MN

When Tom Petters was convicted in US District court of multiple counts of fraud, I wondered why a supposedly smart person would resort to fraud. Bernie Madoff essential did the same thing. They paid the early investors with the money invested by later investors. Petters created phoney documents to show business activity that was a fiction, and was able to get other people to invest in his enterprise. Both Petters and Madoff became very wealthy, with other peoples money. Now they are both enjoying life at taxpayers expense.

What troubles me, besides the very fact that they would defraud innocent people, is that they were operating a scheme that could not succeed in the long run. Madoff's operation was surprisingly long lived, but wouldn't have lasted quite so long had the regulatory agencies done their jobs. But these schemes can not be successful in the long term. You can't keep bring in more money to pay off prior investors. Eventually you will run out of willing investors, and the truth will come out.

So, why would supposedly smart people do this? The only answer is that they were not smart enough to figure out that the fraud had a limited life, or they planned to leave the country. In the Petters case, Star Tribune reporters David Phelps and Aimee Blanchette had an interesting interview with the foreman of the Petters jury. In the end, Petters own e-mails were his undoing.

Since Petters contended that he was innocent, there was no revelation about the why, and what he would do once it became clear he was going to be caught. However, most of the money is still missing. Petters isn't talking, so perhaps he had plans but he was not able to leave before he was arrested. We probably will never know.
 

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In the almost never ending quest to squeeze blood out of a turnip, the Trustee has sued Madoff's wife in attempt to recover more assets. While I can understand the attempt, and she does have some money, I wonder how far they will get with the theory that she should have known that some of that vast wealth was obtained through fraud. Thanks to the WSJ Law Blog.

The Fed's have apparently already determined that Ruth could not be prosecuted, so the theory must be that even though she didn't have enough knowledge to support a criminal complaint, maybe a jury will give them something. The claim that she should have known that all that money could not have come from legitimate sources is, I think, weak. The first problem is that so many people on Wall Street were making so much money legitimately, or at least in ways that didn't violate criminal laws. What standard do you use to show that she should have known? It is not a situation where Bernie was the only one doing well. His success stood out, but people kept investing and they didn't suspect anything. So you must conclude that while he looked successful, he didn't didn't look so successful that most professionals were suspicious. Even though there were a few that raised flags of warnings, does this make Ruth liable?

I wish the Trustee well, and it would be nice if some more money or assets were recovered. But forcing Madoff's wife into bankruptcy will not solve the problem or make the creditors whole. Sure, she benefited greatly from the stolen money and it should be returned. Maybe she should be divested of the $2.5 million the Fed's allow her to keep. But the government has already seized all the assets they could find. So what is left for the Trustee?

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The Chicago Business Litigation Lawyer has published a couple articles about avoiding Internet Fraud. The tips come from the FBI, and are very telling. The advise is good, and should make us all more cautious. This list is worth a few minutes to read. It is almost impossible to recover funds stolen through internet fraud. The perpetrators are many times overseas, and you will not even be able to determine which country.

The old saying: If it sounds to good to be true, it isn't! Fraud takes on many forms and the victims range from the sophisticated to the not so sophisticated.

In these days of economic hardship for many people, I think there is a tendency of some people to believe what they perceive as a good deal or a way to make money. The people that invested with Bernard Madoff were very happy that their investments continued to do well while the rest of the market was not doing so well. Here is an interesting article about the lawyers and the litigation started as the investors pick at the bones of the carcass that was Madoff's financial castle. If everything is going well, why look too hard.

Tom Petters' investors believed what was put in front of them. It all sounded good. But it wasn't and in the end the investments were fictions. remember just because it is written down does not make the representations true.

The smartest people can be victims. But we don't have to be.

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