UPDATE: 6/13/12, 2:30 p.m., EDT. A statement from Epstein Becker & Green has been added to the eleventh paragraph of this story.
 
The receiver overseeing the wind-down of convicted Ponzi schemer Tom Petters‘s various business interests has filed a federal clawback suit against former Dreier LLP and Epstein Becker & Green partner Paul Traub over nearly $804,000 in fees the prominent New York bankruptcy lawyer received for providing legal counsel to Petters between 2005 and 2008. 
 
The 24-page complaint claims Traub—who is now a New York–based principal and managing director of Boston-based liquidation firm Gordon Brothers Group—was paid “an astonishing $125,000 per month ($1.5 million annually)” to serve as a consultant to Petters, who considered Traub’s influence and expertise essential and who allegedly rewarded him with money and gifts.
 
According to the suit, Traub received almost $2.5 million for work he did for Petters between 2005 and 2008. In the early part of that period, Traub ran his own bankruptcy boutique called  Traub, Bonacquist & Fox, which Dreier LLP acquired in September 2006.
 
“In essence, Traub gave Petters business credibility and access to new potential victims for his fraudulent schemes,” states the complaint filed by Douglas Kelley, a name partner and president of six-lawyer Minneapolis firm Kelley, Wolter & Scott. “Traub knew of the fraud, or willingly ignored it, and accepted substantial payments and gifts from the scheme, including payments in excess of $726,000 directly from Petters’s personal accounts.”
 
In sum, Kelley is seeking the return of $803,966 in what he claims are Traub’s ill-gotten gains. The suit was filed in U.S. District Court in Minneapolis, where Kelley is acting as court-appointed receiver for Petters’s personal assets and certain companies affiliated with the convicted Ponzi schemer.
 
Petters himself was sentenced to 50 years in prison in April 2010 for running a $3.65 billion Ponzi scheme, the second-largest such scam in U.S. history after the fraud perpetrated by Bernard Madoff. Several of Petters’s top aides also received stiff prison terms, including disbarred lawyer Larry Reynolds (also known as Larry Reservitz), who is now serving an 11-year sentence.
 
The Minneapolis Star Tribune and St. Paul Pioneer Press note that Traub has not been charged criminally in the Petters case, which began in late 2008 after Petters was arrested and one of his portfolio companies, iconic camera maker Polaroid, filed for bankruptcy.
 
Several Am Law 100 and Minnesota firms, including Kelley’s, have made millions as a result of their legal work on the Petters case, according to our previous reports. The Petters fraud has spawned a thicket of litigation in criminal, civil, and bankruptcy courts in Minnesota, as lawyers worked to untangle the legitimate businesses owned by Petters from the wider fraud. (For example, Polaroid had to be extricated in bankruptcy from Petters’s larger Ponzi scheme, which unlike the Madoff case, operated such legitimate companies as the camera maker and Sun Country Airlines.)
 
Two years ago, Kelley and his lawyers from Minneapolis-based  Fruth, Jamison & Elsass  sued Traub in bankruptcy court in Minneapolis, where Kelley is also playing the role of trustee for the Petters Company. Partners Thomas Heffelfinger, Cynthia Hegarty, and Patrick Hennessy of Minneapolis-based  Best & Flanagan are serving as counsel to Traub in that suit, which is pending.
 
Traub, who has yet to retain outside counsel in the latest round of Petters-related litigation, did not immediately respond to a request for comment on the suit filed against him last week by Kelley. Esptein Becker said in a statement to The Am Law Daily that the suit filed by Kelley has no bearing on the firm.
 
“Paul Traub worked within our corporate services practice on a contractual basis for less than a year and a half before moving to Gordon Brothers,” said Epstein Becker spokeswoman Marichelli Hughes. “The allegations recently made against Traub took place long before he joined [the firm].”
 
In the years since Petters’s Ponzi scheme collapsed, Traub’s career has taken some tumultuous turns. Shortly after Dreier LLP head Marc Dreier was arrested in December 2008 in Toronto, his firm collapsed when Dreier was revealed to be running his own Ponzi scheme. (Dreier is currently serving a 20-year prison sentence— a new documentary chronicles his abrupt fall from prominence.)
 
Traub, the cochair of Dreier LLP’s bankruptcy practice, resigned from the firm the same day that news of its namesake’s arrest became public. In February 2009, Traub and former Dreier LLP partners Steven Fox, Wendy Marcari, and Maura Russell joined Epstein Becker. Only Marcari remains with the firm.
 
Fox and Russell joined Riemer & Braunstein‘s New York office in July 2011, while Traub headed to Gordon Brothers in June 2010. Gordon Brothers was part of a joint venture with other leading liquidators, which purchased Polaroid’s intellectual property and other assets after winning a bankruptcy auction in April 2009.
 
Traub isn’t the only lawyer to find himself on the receiving end of litigation stemming from the Petters fiasco. Earlier this year, a hedge fund seeking to recoup some of its Petters losses sued Fredrikson & Byron over the Minneapolis-based firm’s work for Petters over a 10-year period.