July 16, 2015 / 4:33 PM / 2 years ago

Bank of Montreal to pay $16 mln over Petters' Ponzi scheme

July 16 (Reuters) - Bank of Montreal agreed to pay $16 million to end a U.S. lawsuit claiming that a lender it bought caused two bankrupt Florida funds to lose money in imprisoned swindler Thomas Petters’ $3.65 billion Ponzi scheme.

Thursday’s settlement with the trustee liquidating the Palm Beach Finance funds was disclosed in a filing with the U.S. bankruptcy court in West Palm Beach, Florida, and requires court approval.

Bank of Montreal denied liability in agreeing to settle. A bank spokesman did not immediately respond to a request seeking further comment. Petters, 58, is serving a 50-year prison term.

The lawsuit by the trustee Barry Mukamal stemmed from Petters’ relationship with Marshall & Ilsley Bank, a Milwaukee-based lender that Bank of Montreal bought in 2011.

Mukamal argued that Marshall & Ilsley had hoped to expand its “important” and “substantial” relationship with Petters, and did nothing while the Minnesota businessman used his account at the bank to further his fraud.

The lawsuit against Bank of Montreal originally sought to recoup $23.6 billion, based on sums transferred by Petters over five years to that account.

Any award at trial would likely have been far smaller.

The Palm Beach funds filed for bankruptcy in November 2009, just over a year after Petters’ fraud was uncovered.

In a court filing, Mukamal said the settlement is in the best interests of the debtors’ bankruptcy estates, and avoids the risk of further litigation.

Prosecutors had accused Petters of using one of his companies to bilk investors who thought he was using their money to buy consumer electronics for resale to retailers such as Costco Wholesale Corp.

Petters was convicted in December 2009 on all 20 criminal counts he faced, including fraud and money laundering.

The case is In re: Palm Beach Finance Partners LP et al, U.S. Bankruptcy Court, Southern District of Florida, No. 09-36379. (Reporting by Jonathan Stempel in New York; Additional reporting by John Tilak in Toronto; Editing by Alan Crosby)

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