Read "Lawsuit Against G.E. Over Petters Fraud to Move Ahead"

From http://blogs.wsj.com/law/2013/08/23/lawsuit-against-g-e-over-petters-fraud-to-move-ahead/

The Wall Steet Journal

August 23, 2013, 6:09 PM ET

Lawsuit Against G.E. Over Petters Fraud to Move Ahead

ByReed Albergotti

Associated Press

Tom Petters

The world may get a better glimpse into what General Electric Capital Corporation knew or didn’t know about one of the biggest Ponzi schemes in U.S. History.

A federal bankruptcy judge in Florida gave the green light Friday afternoon to a lawsuit alleging the commercial lender, a unit of General Electric Co., knew that one of its clients, Thomas Petters, was operating a Ponzi scheme.

The lawsuit, which was originally filed last fall by a liquidator for two hedge funds that lost money in the fraud, alleges that GECC uncovered the scheme in 2000, but kept it quiet in order to insure a $50 million loan was repaid.

Most of Mr. Petters’ victims didn’t discover the scheme until it went bust in 2008, according to the lawsuit. The hedge funds, Palm Beach Finance Partners, L.P. and Palm Beach Finance II, L.P., lost roughly $1 billion.

Lawyers for GECC didn’t immediately respond to a request for comment.

Mr. Petters is serving a 50-year prison sentence.

The lawsuit alleges that in late 2000, GECC discovered the Ponzi scheme when it contacted Costco, whom Mr. Petters was supposedly doing business. But Costco said it had no business dealings with Mr. Petters, according to the suit.

Rather than expose Mr. Petters, the lawsuit alleges GECC “elected to accept a payoff” of Mr. Petters’ loan “and to otherwise join, encourage, aid, abet, facilitate, and substantially assist Petters’ conspiracy.”

Roughly two years later, the two Palm Beach hedge funds began lending money to Mr. Petters. According to the suit, the funds agreed to make the loans in part because they believed he had the endorsement of GECC.

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