New York (HedgeCo.net) – Hedge fund investment firm, Ritchie Capital Management, L.L.C., has filed a petition for a Writ of Certiorari (a formal written order seeking judicial review), 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 hedge fund Ponzi scheme.
The case, opened on December 1, 2010, seeks enforcement of victims’ rights conferred by the Mandatory Victim Restitution Act of 1996 (MVRA) and the Crime Victims Rights Act of 2004 (CVRA).
“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.”
“This case has disturbing implications for all Americans’ property rights.” Brenda Grantland, lead counsel, said, “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 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.
The hedge fund manager also asked 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.
Unlike most victims of fraud, the victims of Petters’ fraud could not sue the hedge fund manager, 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 Supreme Court case number is 10-738 and the docket can be found here.
Editing By Alex Akesson
For HedgeCo.net
alex@hedgeco.net
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