A federal jury in St. Paul on Tuesday afternoon awarded $564 million in damages in a lawsuit filed in connection with Twin Cities businessman Tom Petters’ Ponzi scheme – the largest recorded jury verdict in Minnesota.

The jury ruled that BMO Harris Bank must pay $484 million in compensatory damages and nearly $80 million in punitive damages to the bankruptcy trustees handling Petters’ case. An estimated $400 million in prejudgment interest, dating back to when the case was filed in 2012, means BMO Harris could be liable for about $1 billion, said Doug Kelley, the bankruptcy trustee overseeing the recovery of funds in Petters’ $3.65 billion Ponzi scheme, the biggest financial crime in Minnesota history.

Kelley filed the lawsuit against M&I Bank in federal bankruptcy court in St. Paul in 2012, alleging aiding and abetting fraud, breach of fiduciary duty and civil conspiracy. M&I Bank was acquired by BMO Harris Bank, a subsidiary of BMO Financial Holdings, in 2011.

Kelley said bank officials were complicit in Petters’ illegal operations by ignoring multiple red flags as they handled his business accounts before 2008 in order to protect a lucrative banking relationship.

More than $41 billion “flowed through a single checking account during the seven years that they had Petters as a customer,” Kelley said. “As a former white-collar-crime federal prosecutor, I knew that was an astronomical amount to flow through a small-business checking account.”

Bank officials ignored multiple computer-generated money-laundering alerts connected to the checking account, he said.

“If they had done what they were supposed to do, they would have filed suspicious-activity reports, which would have gone to the feds,” Kelley said. “They had 39 months in a row where they had suspicious-activity reports where they turned all those alerts off. If they had reported this to the feds early on, it would have stopped this Ponzi scheme dead in its tracks.”

Officials with BMO Financial Group, which is based in Montreal, said Tuesday that they would set aside $1.12 billion Canadian dollars as a result of the outcome “in accordance with applicable accounting standards.” In a prepared statement, they said that they “strongly deny” the allegations in the lawsuit and plan to appeal the jury’s verdict and award.

“We are disappointed with the jury’s verdict, which is not supported by the evidence or the law,” BMO officials said. “We will file a number of post-trial motions with the trial judge to reverse the verdict or reduce the damages, and we intend to pursue all avenues to overturn the jury’s verdict, including appeals. We are confident that we have strong grounds for appeal.”

Pursuant to a prior settlement in connection with another Petters matter, BMO Harris is entitled to recover approximately 21 percent of any amount that it pays to the trustee, bank officials said.

Kelley, who has been working since 2008 to help organizations and individuals who lost billions in the Petters schemes, said he was confident the jury’s verdict would stand. He said it could take 12-18 months to carry out the appeal process.

BMO Harris officials and Kelley were twice encouraged to discuss a possible settlement during U.S. Bankruptcy Court proceedings, Kelley said.

“There was never any indication that they might settle with us,” he said. “We kept saying, ‘Well, that’s fine. We’ll go to trial because we have every confidence that what you did was wrong.’”

Petters’ business empire imploded in 2008 when Petters Co. was revealed as a massive Ponzi scheme. Revenue from the scheme was used to prop up Petters’ legitimate businesses, including Sun Country Airlines in Mendota Heights, and finance acquisitions of other firms, including Polaroid Corp.

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Petters, 65, formerly of Wayzata, was indicted in 2008 on multiple counts of mail fraud, wire fraud, money laundering and conspiracy. A year later, a federal jury found him guilty on all counts and he was sentenced by U.S. District Judge Richard Kyle to 50 years in prison.

He is an inmate at the federal prison in Leavenworth, Kan.; his release date is May 13, 2050, according to the U.S. Bureau of Prisons.

Others wrapped up in the enterprise also were convicted. As part of their sentences, Petters and others were ordered to forfeit assets gained through the Ponzi scheme, including bank and investment accounts, vehicles and real estate.

Kelley commenced more than 300 lawsuits, most of which were so-called “claw-backs,” or bankruptcy adversary proceedings, to recover other profits and employee bonuses received by Petters’ earliest investors or executives.

To date, more than $737 million has been recovered and returned to victims and creditors. That includes creditor settlement and distributions; lender settlement distributions; payments to bankruptcy estates and funds forfeited by the U.S. government for distribution to victims, Kelley said.