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Bankruptcy Trustee Lodged Complaint that GE Conspired with Minnesota Businessman

A bankruptcy Trustee filed a claim against GE Capital for their failure to publicly expose a Ponzi scheme before the bankrupt lender in the case lost millions of dollars in loan defaults.

The trustee for the Ark Discovery estate lodged a fraud complaint against GE Capital, alleging that the company aided and abetted fraud by a Minnesota business man who has been convicted of fraud.

For a 14 year period, the Minnesota businessman operated a Ponzi scheme that netted millions of dollars. The man’s scheme involved the buying of discontinued and overstocked electronics and then reselling the items to big box retailers. What was found out is that there were no retailers and hardly any merchandise involved. The man was able to hide this fact from his investors and repaid his lenders with money that he received from other lenders.

Ark Discovery operated as a hedge fund in order to extend 30 loans with a value of $165 million over the course of a year to the man’s company. It was found that the company was a sham. Ark Discovery created the loans under the belief that it would be paid fees and interest from the profits made by the electronics sales. GE also loaned the man money over a five year period.

ARK Discovery continued making the loans until they found out that the man was being investigated. It wasn’t too long after that that the man was charged with fraud and was sentenced to 50 years in prison. In May 2009, Ark Discovery had to enter bankruptcy proceedings. Court action wasn’t taken against GE until nearly six years later, alleging that GE had knowledge of the Ponzi scheme, but didn’t expose what was happening. Instead, it was alleged that GE helped the man keep the scam going in return for the repayment of the loans, plus a fee acquired from new investors.

The bankruptcy trustee for Ark alleged that Ark was tricked into loaning money to the man and that GE’s role in helping maintain the scheme contributed to the decision for Ark to loan the money. He alleged that if GE had exposed the scheme, Ark would’ve never loaned the money and they would not have gone under.

Ark’s total losses came out to be $107 million, which is the amount that the trustee sought from GE in damages.

GE filed a motion to dismiss the claim, stating that the trustee had no standing. They stated the suit was filed after the statute of limitations had expired. The judge presiding over the matter ruled in favor of GE on July 27, 2015.

The judge said that the trustee didn’t explain how GE caused harm to Ark Discovery and that there were no direct dealings between the two lenders. It was found that Ark didn’t know GE was involved with the man until after the created the loans for him.

As for the statute of limitations, Minnesota does have a six-year statute of limitations on fraud claims. The case was filed when the statute of limitations began. There was a dispute as to when the clock had started on the statute of limitations.