Ritchie Capital Management Files Writ of Certiorari Petition in U.S. Supreme Court in Petters Fraud Case

Dec 13, 2010, 18:36 ET from Ritchie Capital Management, L.L.C.

WHEATON, Ill., Dec. 13, 2010 /PRNewswire/ -- Ritchie Capital Management, L.L.C., an alternative investment firm, announced that on December 1, 2010 it filed a petition for a Writ of Certiorari asking the U.S. Supreme Court to review decisions of the Minnesota Federal District Court and Eighth Circuit Court of Appeals denying restitution to the victims of Thomas Petters' $3.5 billion Ponzi scheme. The case seeks enforcement of victims' rights conferred by the Mandatory Victim Restitution Act of 1996 (MVRA) and the Crime Victims Rights Act of 2004 (CVRA). These two statutes made revolutionary changes in the way business should be conducted in criminal courts – for the first time, giving crime victims enforceable rights in criminal cases.

Ritchie Capital Management asks the Supreme Court to decide an issue on which the circuits are split – whether a sentencing court may deny mandatory restitution to the victims of fraud because it believes the victims might be able to recoup their losses in a different forum.

The MVRA made restitution mandatory whenever federal courts sentence defendants convicted of fraud, unless the court finds that the burden "on the sentencing process" of deciding the restitution issues outweighs the victims' need for restitution. In deciding that the interests of the victims here, several of whom claimed losses in the hundreds of millions of dollars, were outweighed by the burden on the court, the district court judge said the victims had alternative remedies they could pursue to try to obtain relief.  

Ritchie Capital Management also asks the Supreme Court to reverse the Eight Circuit's decision to deny the firm's petitions for relief filed with the Court of Appeals because it failed to state any reason at all for such denial – in violation of a provision of the CVRA, which requires the appellate court to issue a written opinion detailing the reasons for its decision if it denies a victim's petition for relief.

For two centuries criminal cases in this country had two parties – the prosecution and the criminal defendant. No one else could intervene in the case or seek relief from the court.  Victims had no rights at all in criminal courtrooms until the 1980s. Early legislation creating rights for victims proved ineffectual in giving victims a role in the criminal process because the rights they created were not enforceable by victims. Until the CVRA, victims had no right to appellate review when the district court denied their rights. This case tests the mettle of CVRA's enforcement mechanism, by asking the Supreme Court to use its supervisory power to require the Eighth Circuit to issue a written opinion, as the statute's clear language requires.

Unlike most of the cases which have relied on the availability of other remedies in denying restitution under the MVRA "complexity exception," the victims of Petters' fraud could not sue Petters, his companies or his co-defendants to recoup their losses. At the outset of the Petters' prosecution, the government filed a civil injunction and receivership action, and the court froze all the defendants' assets, putting them under the control of a court-appointed Receiver (Petters' lawyer), and imposed a stay preventing anyone from suing the defendants or their companies. That litigation stay remains in effect today. The often-stated purpose of the receivership was to preserve assets for victim restitution, but now, as a result of the sentencing judge's orders denying all restitution, the assets held by the Receiver will go to the federal government in forfeiture.

When the district court denied restitution on the ground that "alternative avenues of recovery are available to victims," it was relying on the victims' ability to file claims in the bankruptcy cases of Petters' companies, and to petition the Department of Justice for "remission" from the assets forfeited to the government. Neither remedy is an equivalent substitute for restitution. Bankruptcy by its nature is an incomplete remedy, with creditors and victims getting pennies on the dollar at best. Remission is a matter of executive grace, decided by a Justice Department official without a hearing. There is no judge, and no judicial review of the agency's decisions. Law enforcement agencies may be paid out of the pool of assets before any victims are compensated. In contrast, the MVRA requires restitution judgments for the full amount of each identified victim's losses, without consideration of the defendants' financial condition.  Even when there are insufficient assets to pay the awards in full, restitution judgments are enforceable against the defendants for 20 years, and can tap future earnings, inheritances, and money defendants receives from any sources.  

The very point of the MVRA, absent tightly circumscribed exceptions, is to impose a mandatory requirement that courts impose restitution. Allowing courts to abdicate that duty based on speculation that victims might obtain recompense some other way would effectively render the Act a nullity, for victims have always had the right to pursue alternative avenues of relief through civil litigation.

"This is a cautionary tale for all Americans, and it is very troubling to consider the potential abuses that hard working individuals could face when a sophisticated investment fund with significant resources can be relieved of its rights without due process," said Thane Ritchie, founder of Ritchie Capital Management. "Many of the people involved in this case have either manipulated the law or turned a blind eye to manipulation by others, and as a result have thwarted the efforts of innocent victims to recover their legitimate property. We will continue to fight for the rights of our investors – which include factory workers, teachers and other hard working Americans through their retirement funds – who are the ultimate victims of the Petters Ponzi scheme and now the mishandling of remaining assets."

"It is astounding that the co-defendants in the Petters case received essentially a slap on the wrist.  Two will be eligible for release in less than a year. All of them will get out of prison, free of debt thanks to the litigation stay, and with no restitution to pay – after causing billions in losses." Brenda Grantland, lead counsel, commented. "This case has disturbing implications for all Americans' property rights. The receivership order took away victims' civil rights to sue the defendants to recover their losses, promising the victims restitution from the criminal case instead, and then the sentencing judge denied restitution and gave the money to the government. The victim's rights to recover their losses from Petters and his codefendants were permanently suspended."

The Cert Petition can be downloaded (free) at http://www.brendagrantland.com/RitchieCertPetition/RitchieCertPetition.pdf.

The Supreme Court case number is 10-738 and the docket can be found at http://www.brendagrantland.com/RitchieCertPetition/index.html.

About Ritchie Capital Management

Ritchie Capital Management is an alternative asset management firm established in 1997 with interests in hedge funds, private equity, venture capital, insurance, energy and real estate and with offices in Wheaton, IL, New York, NY and Menlo Park, CA.


Justin Meise

River Communications



SOURCE Ritchie Capital Management, L.L.C.