Business Fraud Experts Decry Federal Self-Dealing In Overseeing $3.6 Billion Ponzi Aftermath

By Andrew Kreig / Executive Director's Blog

Corporate turn-around expert William Procida and hedge fund founder Thane Ritchie were DC Update guests Sept. 2 on the My Technology Lawyer Radio network as they provided first-hand accounts of federal court irregularities in Minnesota that they claim victimize lenders and investors in one of the largest Ponzi schemes in U.S. history.

During the show, they told co-hosts from the Justice Integrity Project and network founder Scott Draughon about why they’re speaking out against federally orchestrated injustices hurting the fraud victims of Minnesota businessman Thomas J. Petters. The latter’s Ponzi scheme discovered in 2008 caused estimated damages of $3.65 billion ─ including to lenders and investors in such Petters-controlled companies as Polaroid, Sun Country Airlines and the distributor Fingerhut. Ritchie claims more than $220 million in loans and interest at serious risk.

“I’ve never seen a criminal’s attorney be a receiver,” Procida says of disputed court orders that made former Petters defense attorney Douglas Kelley receiver and also the U.S. trustee.  The court also gave Kelley “judicial immunity,” thereby limiting victim oversight of his controversial decisions.

Read more: Business Fraud Experts Decry Federal Self-Dealing

Film Alleges Official 'Fraud' Against Victims of $3.6 Billion Ponzi 

Victims of a massive financial fraud unveiled a documentary Aug. 25 in Minneapolis that portrays federal authorities as helping bankruptcy lawyers and the government feast on dwindling victim assets without adequate protections for fairness.

The Second Fraud, spiked last December from planned showings on four Minnesota TV stations with purchased time, tackles an especially sensitive story in that state: What happened after local financier Thomas Petters caused the estimated $3.65 billion in losses that authorities revealed in September 2008?

But the film's theme -- and larger importance -- is not about the fate of the Gatsby-like Petters, now 53. He's a college drop-out who took charge of Polaroid and several other well-known companies before receiving a 50-year federal prison term in April.  

Instead, the film's main focus is the respected Minneapolis attorney Douglas A. Kelley, right, a former federal prosecutor and U.S. senate staffer. The film portrays him as an opportunist empowered by the courts to arrange big legal fees for himself and his cronies without full due process, thereby causing a "second fraud" upon lenders and investors. Without accepting either that view or the Kelley's position that he's carrying out his duties in the most public-spirited way possible, it's reasonable to wonder how well our watchdog institutions are protecting our financial future from either scamsters or saviors. 

Read more: Film Alleges Official ‘Fraud’ Against Victims of $3.65 Billion Ponzi Scam

Project Shares DOJ Misconduct Revelations & Reform Options With PDA Audience

Progressive Democrats of America (PDA) hosted me Aug. 11 on a nationwide conference call to hear about our recent Justice Integrity Project (JIP) revelations about federal law enforcers. Open to the public, the core of the discussion within PDA’s highly active Accountability and Justice Group involved such familiar names as former Alabama Gov. Don Siegelman (who joined the call as a surprise guest), Kagan, Stevens and Kerik. 

A Democrat long prosecuted-under flimsy charges, Siegelman, 64, right, urged pressure on Congress to push the DOJ into thorough internal misconduct probes, not the whitewashes revealed recently. He reiterated the evidence that he was prosecuted to remove him politics. His main convictions in 2006 were for reappointing to a state board in 1999 a donor to a non-profit. The Supreme Court vacated those convictions in June after the Obama administration's DOJ sought 20 additional years in prison for him, and no Supreme Court review. The Obama DOJ also has retained in office the Bush U.S. attorney running the Alabama office that prosecuted the former governor. 

In Siegelman's case and others like it around the U.S., we at JIP argue that the Bush and Obama DOJ have each failed to provide credible internal oversight of misconduct allegations against their own personnel and relevant officials at the White House and CIA. Looking ahead, major reports are due soon from the DOJ and Senate on the hot-button issue of federal involvement in torture.

JIP urges cross-party cooperation to preserve our nation’s precious heritage of due process. Promising signs of this include PDA’s willingness to republish JIP findings earlier this year about the unfairness of the federal coercion of a guilty plea from the Republican former New York City Police Commissioner Bernard Kerik. PDA just celebrated its sixth anniversary.

Several bloggers and editors promptly followed up on my report in Nieman Watchdog July 26 about the Justice Department’s apparent whitewash of its probe of U.S. attorney firings under George W. Bush. Harper's legal columnist Scott Horton wrote an online column suggesting the revelations further illustrated a whitewash.

But it was hard to find even a word about it in the traditional press. There wasn’t any reaction from the Justice Department or legislators either, although there’s nothing new about this kind of governmental response to press exposés. It falls in the category of, “Leave it alone and maybe it’ll go away.”

The Justice Integrity Project story dealt with what was, from all appearances, a flimsy and tainted nationwide probe that led to arguably the most important mass exoneration of high-level federal wrongdoing since President George H.W. Bush’s 1992 pardon of Iran-Contra convicts.

Former Alabama governor Don Siegelman wrote us to say of the DOJ’s recent action in ending its investigation in a letter to Congress July 21, “This is an outrageous act of cowardice and cover-up.” Siegelman, the defendant in the nation’s most controversial federal prosecution of the decade, later was even more harsh in describing the DOJ’s decision July 21 to clear all recent Bush White House and DOJ personnel of suspicions of lawbreaking:

The DOJ has all the resources in the world to go after Lance Armstrong [on a multiyear, multimillion-dollar probe of suspicions that Armstrong cheated in bike races] but they don’t have the balls to go after Karl Rove.

Read more: How Did Media Report the Taint On DOJ's Investigators?

What's Next After Kagan's Confirmation?

The Senate confirmed Elena Kagan's for the Supreme Court by a 63-37 margin Aug. 5, thus overcoming opposition by all but five Senate Republicans. The Justice Integrity Project announced opposition June 28. Our goals didn't rely on vote results. Instead, we wanted to shift debate away from the party-line hokum and horse-race punditry.

Here's our prediction: With the Kagan appointment, we're now seeing the yet another well-credentialed careerist elevated to a lifetime job. She'll likely help shift constitutional power further toward an increasingly unaccountable Executive Branch that's vastly different than the Framers envisioned even as amplified by post-Civil War amendments for a slave-free society. The Constitution-makers emphasized the duties of the Senate and House, and the vital congressional role in checks and balances. Kagan, 50, a close friend of President Obama and a former top aide to President Clinton, suggests through her writings and other actions that she's comfortable with these dangerous long-term trends.

Read more: What's Next After Kagan's Confirmation?

Feds bully 'Die Hard' filmmaker McTiernan into plea for false statement

A noted Hollywood filmmaker, at right, faces prison after a conditional guilty plea July 12 in a wiretapping case so interesting that it deserves two alternative news accounts.

Here’s how I described it: Yet again, federal authorities abused their vast powers to promote their greater glory by manufacturing a crime and ruining a career ─ at needless expense to federal taxpayers. 

Read more: Feds Bully ‘Die Hard’ McTiernan Into Plea for False Statements

Project's National Press Club Speech Cites DOJ Prosecution Misconduct

The Justice Integrity Project documented appalling abuses of defendant legal rights in a July 21 speech at the National Press Club in Washington, DC. As executive director, I spoke about the project's ongoing work documenting abusive tactics against white-collar defendants of varied political backgrounds.

Earlier in the month, the weekly Washington Update public affairs show we co-host brought on two author-experts. Bruce Fein, right, a high-ranking DOJ official in the Reagan administration and author of this summer's American Empire Before the Fall, criticized Kagan for what he called her “ridiculous” arguments extending presidential power and endangering historic U.S. civil rights. Dick Russell, author of the best-seller this spring American Conspiracies plus six previous books, described BP's Gulf oil "volcano" as the worst natural disaster in recorded history. Visit here to listen to Washington Update and previous shows in the series featuring expert guests.