Petters ordered held; whistleblower identified

1:52 PM, Oct 9, 2008   |    comments
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ST. PAUL -- Businessman Tom Petters was ordered to remain behind bars on Wednesday, with a judge deciding there was too great a risk the founder of Petters Group Worldwide would flee charges he defrauded investors of up to $3 billion over 14 years. After the judge's decision, Petters mouthed the words, "It's OK. I love you. It's OK," to his adult daughter, Jennifer Petters, who was crying in the courtroom. U.S. Magistrate Judge Jeffrey Keyes cited a recorded phone conversation Petters had Oct. 1 with a co-defendant, Robert White, in which Petters spoke of fleeing the country. Keyes said the conversation was "more than a desperate defendant talking about just fleeing." He rejected a defense request for home detention, saying it would not stop a "resourceful" defendant. According to court documents, Petters had personal assets of over $1 billion at the end of last year. Prosecutors have said they don't know where all the assets are. Petters is charged with mail fraud, wire fraud, money laundering and obstruction of justice. His attorney, Jon Hopeman, has said his client denies wrongdoing. Authorities said Petters masterminded a scheme to create false retail transactions to lure investors. According to court documents and testimony, Petters and his associates created fake documents that detailed the purchase of merchandise from small vendors and the resale of that same merchandise to larger retailers. The transactions never happened, and the investors' money went toward Petters' business ventures and his "extravagant lifestyle," documents said. The speed of Petters' transformation from respected businessman to federal defendant was stunning. Authorities began investigating after a witness who was involved in the scheme came forward on Sept. 8. That witness was identified Wednesday as Deanna Coleman, vice president of operations at Petters Co. Inc., a financing unit within Petters Group. At a separate hearing in the same federal courthouse where Petters appeared, Coleman pleaded guilty to conspiracy to commit fraud. She faces as much as five years in prison, though that likely will be reduced by her cooperation with the government. Coleman's attorney, Alan Caplan, called it, "an astronomical fraud." "She was deeply troubled by her involvement in the situation and she made the decision to end it by going to the government," Caplan said. He said Coleman, 42, of Plymouth, earned around $5 million from the company in salary and bonuses, but was likely to emerge penniless. He called her cooperation, "a very courageous thing to do." "She wanted to bring that to a screeching halt before billions of dollars of other people's money could be squandered," Caplan said. White, 67, of Excelsior, also pleaded guilty Wednesday to counts of mail fraud and illegal monetary transactions. White, a former officer for PCI and more recently a consultant for the company, was accused of creating phony paperwork to make it appear the false retail transactions existed. White and his attorney, Joe Friedberg, both declined comment after his plea hearing. White could face up to 22 years in prison but, like Coleman, is likely to get a reduced sentence for cooperating. In the recorded Oct. 1 conversation between White and Petters, Petters seems to be advising White to get on his boat and flee the country, Keyes said. The judge also noted that Petters talked about false identification; going to a country that doesn't have extradition to the United States; and about researching Marc Rich. Rich is a billionaire financier who fled the United States in 1983 and lived abroad for 17 years rather than face charges of tax evasion, fraud and making illegal oil deals with Iran. In the phone conversation, which was played in court Tuesday, Petters talks to White about leaving with his significant other, saying, "as long as we have our kids, we can do anything. We can start over." In an affidavit filed Oct. 2 and recently unsealed, FBI Special Agent Eileen Rice said that a Nevada Gaming Enforcement agent told the FBI that Petters has gambling losses in excess of $10 million. The Nevada agent also told the FBI that Petters is, "the largest comped-room guest at the Bellagio Casino in Las Vegas, Nevada." Petters learned that the FBI was closing in on Sept. 24, when he was interviewed by FBI at the Bellagio Casino in Las Vegas, while his home and offices were being raided by authorities in Minnesota. Another defendant in the case, Michael Catain, also pleaded guilty Wednesday to one count of money laundering conspiracy. Federal documents say a company controlled by Petters routed money through Catain's company. Under questioning in court, Catain said the scheme between himself and Petters ran from 2002 through 2008. The plea agreement states that during that time, about $12 billion was routed through Catain's account and redirected to PCI. Catain told the court he would keep a commission of the funds, which yielded him over $3 million, but that most of the fraudulent funds went to PCI. Catain, 52, of Shorewood, faces a maximum of 20 years, but should get less if he cooperates. His attorney said that Catain would testify against Petters. One other person has also been charged in the case, and a handful of others are named in court documents, but haven't been charged. Petters Group Worldwide had $2.3 billion in revenue in 2007. The company has investments in dozens of companies. Its holdings include Polaroid and Sun Country Airlines, which filed for Chapter 11 bankruptcy on Monday after it couldn't turn to its parent company for a short-term loan because of the federal investigation. Petters resigned as chairman and CEO of Petters Group before his arrest last week. Petters Group's assets have been frozen and the company has been placed in receivership.

(Copyright 2008 by The Associated Press and KARE. All Rights Reserved.)

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