Is This the Wild West of Ponzi Scheme Wind Down?

The aftermath of a ponzi scheme is a lawyer's dream.  Large amounts of money sit around with no clear owner.  The government gets involved.  People are upset and want to sue.

Our Minnesota version (Tom Petters at $4 billion) doesn't match up to New York (Bernie Madoff at $50 billion).  Minnesota lawyers, however, can still make New York money sorting it out. 

Here is a fascinating story told in a movie commissioned by Thane Ritchie, a fund manager.  Petters gave Ritchie a security interest in the assets of Polaroid Corporation (how someone like Petters could get control of Polaroid is another story).  Ritchie is down $200 million, sees his security interest in jeapardy, and is obviously upset. 

http://www.thesecondfraud.com/Second_Fraud/Welcome.html

Apparently a politically connected lawyer -- the same lawyer that Petters hired to represent his companies after the FBI raided his headquarters -- managed to get appointed receiver for the government in the asset forfeiture case AND trustee of the Petters companies in bankruptcy.  Dozens of lawyers are working for the receiver/trustee to sort out the aftermath of the Petters case and their fees are running into the tens of millions.  Ritchie believes that he and the other creditors are paying the bill while getting little in return.

I am not in a position to vouch for or against the facts stated in the movie, but I was asked to speak on a panel after the movie and here are the issues I identified based on the facts alleged therein:

Conflicts of interest.  In the Madoff case, separate lawyers represented Madoff and his businesses, acted for the government as receiver and acted as bankruptcy trustee.  In the Petters case, we have rolled them all into one.

The impact of government asset seizure on innocent parties.  This is a forfeiture law issue but broader questions of government ethics arise if government power is abused.

Lawyers' fees. How much is too much in a bankruptcy case?  Fees are an issue in many other cases, including the Lehman Brothers bankruptcy.  Should fees be less extravagant if earned by a lawyer acting as a government receiver in a forfeiture case?

The receiver's judicial immunity from private lawsuits.  Judicial immunity has been given to the receiver, but is it appropriate when the conflicts of interest would have required a similarly situated person who was in fact a judge to recuse from the case?

The Petters wind down involves one of the best known lawyers in Minnesota acting under the supervision of a widely respected judge known for her fairness in other cases (the movie is not so charitable about either of them).  Still there are nagging questions about whether this episode undermines respect for our legal system.

One radical idea:  a receiver in a government forfeiture case should not earn any more from the case annually than the salary of the judge who appointed him.

In any event, this is fascinating material for a professional responsibility course.