Michael Budwick, left, and Solomon Genet, right, of Meland Russin & Budwick in Miami. Courtesy photos.

After eight years of investigation and litigation, Michael S. Budwick and Solomon B. Genet of Meland Russin & Budwick in Miami negotiated a $49 million settlement agreement with General Electric Capital Corp. over claims the Boston-based lender became a co-conspirator in one of the biggest Ponzi schemes in history.

The win stems from a Florida bankruptcy case, in which Budwick and Genet represent Barry E. Mukamal, trustee for two Florida hedge funds — Palm Beach Finance Partners L.P. and Palm Beach Finance II L.P. — down $651 million after lending it to businessman Tom Petters.

Between 1995 and 2008, Petters ran a $3.65 billion scheme, using fake documents to convince investors to help buy overstocked electronics to sell to retailers. Petters claimed wholesale giant Costco was his main customer — only it wasn't.

Upon discovery in 2008, it was the biggest scam the world had seen. Shortly after, Bernie Madoff and Allen Stanford took the top spots. Petters was convicted, sentenced to 50 years in prison, and his business, Petters Group Worldwide, fell into bankruptcy in Minneapolis.

The Palm Beach hedge funds suffered a third of overall losses, so Budwick and Genet traveled the country meeting with victims and perpetrators to pinpoint liability, filing more than 150 lawsuits to claw back lost money.

Most settled, but one wouldn't go away. Though GE Capital was a victim, Budwick and Genet found it discovered Petters' scam in 2000 but told no one, allegedly on the condition it would be repaid by new, unwitting investors. According to Budwick, GE Capital wrote a recommendation letter Petters used to recruit fresh marks.

Thomas Joseph Petters mugshot.

GE declined to comment, but denied it joined the fraud and moved to dismiss based on lack of evidence and standing.

Meanwhile, it wasn't easy coordinating depositions of 13 experts and 68 witnesses, many of whom were locked up nationwide, according to Budwick, who said he was barely home.

“I literally had one of those desktop calendars where I would rip off each of the months, and I had them pasted on the walls of my office through all of 2016, where we were identifying which witnesses were in which cities and the logistics of when we could get to each deposition,” Budwick said.

GE ultimately withdrew its lack of evidence argument, and the Court of Appeals for the Eleventh Circuit ruled Budwick's client had standing to sue.

“In a case like this, the only way you can be successful is to be very aggressive,” Budwick said.

Budwick wasn't the only lawyer after GE Capital over its Petters link, but he was the only one to succeed. Three similar lawsuits in New York, Chicago and Minnesota followed Budwick's but flopped, even though investors in those cases had lost about $400 million.

“GE Capital has excellent lawyers and they were able to convince those others courts that it was the trustees for Petters' company that had the standing to sue GE Capital, even though we had prevailed before the bankruptcy judge,” Budwick said. “It's unfortunate that they recovered nothing but we're pleased that we were able to get such a large recovery, given their lack of success.”

Defense counsel Sean Berkowitz and Miles Ruthberg of Latham & Watkins in Chicago and New York did not respond to requests for comment.

Budwick and his team began investigating on a contingency fee in 2011 and haven't been paid yet. Attorney fees total about $18.6 million — 33% of the $49 million settlement for the case, then another 5% for a related appeal. Budwick's firm would get the lion's share, about $14.2 million or 29% of the settlement amount, with co-counsel at two other firms receiving the remaining 9%.

This means co-counsel from Kozyak Tropin & Throckmorton would get $2.94 million, and Mandel & Mandel $1.47 million.

U.S. Bankruptcy Judge Erik P. Kimball will hold a hearing on approving the settlement May 2.

If ratified, the $49 million will boost the $170 million recovered in the case so far. One final $9 million clawback suit remains for the Florida hedge funds, which are also the second biggest creditors in Petters' Minnesota bankruptcy case. Trustee Mukamal sits on a creditors' committee there, making decisions while Budwick manages litigation as oversight counsel.

 

Read the motion:

 

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