Petters, on witness stand, denies knowing of fraud

AP News
Posted: Nov 17, 2009 8:26 PM

A Minnesota businessman accused of orchestrating a massive Ponzi scheme testified Tuesday that he did not knowingly participate in the fraud and may have "trusted some people far too much."

Tom Petters took the stand in the third week of his trial on 20 counts of wire fraud, mail fraud, conspiracy and money-laundering and proclaimed his innocence. Federal prosecutors say Petters, who rose from merchandise liquidation deals to holdings in such well-known names as Polaroid and Sun Country Airlines, led a Ponzi scheme that cost investors $3.65 billion.

"I have a lot of regrets," Petters said. "I ran too fast. I trusted some people far too much. Sometimes I didn't double-check and recheck."

Asked by his attorney, Jon Hopeman, whether he was guilty of the charges, Petters said no.

"Did you participate in a fraud?" Hopeman asked.

"I guess I did. ... Definitely not knowingly," Petters answered.

Petters and his co-conspirators allegedly used falsified business documents to fool investors into thinking the money was being used to buy electronics that would be resold at a profit to big-box retailers such as Costco and Sam's Club. Instead, the money went mostly to pay other investors, though prosecutors presented evidence Monday that $83 million went into Petters' personal accounts and $315 million went to subsidize his other businesses.

Petters' attorneys have countered that the scheme was carried out by others in his Petters Co. Inc. subsidiary without his knowledge. They also claim Petters paid less attention to PCI because he was distracted after the murder of his son John, in Italy in 2005, and focused on his new acquisitions instead.

In his testimony Tuesday, Petters, 52, of Wayzata, said he wanted to apologize to his former employees and their families, to his own family, his mentors and to investors who lost money.

Petters also recounted his career in sales, including the stereo gear company he set up while in high school in St. Cloud, which his parents shut down so he could focus on his studies.

Later, he talked about his initial forays into the liquidation business, where he said problems constantly cropped up with suppliers and financing.

"It can be an extremely lucrative business if you're focused on it," he said. "It's not for the faint of heart."

In the early 1990s, he said, PCI started getting into the "diverting" business, in which products are taken from their normal business channels and sold somewhere else. He said his first major diverting deal was when he bought "trailers and trailers" full of Sony TVs from a Best Buy Co. division and sold them to Costco. He said it required "a great deal of sensitivity" because Sony didn't want its products sold at Costco at the time, and Best Buy didn't want to endanger its relationship with Sony.

Diverting is a smaller business these days because discount clubs such as Costco and Sam's Club now have the necessary market clout to buy directly.

Petters also talked about starting online retailer and its business-to-business counterpart during the Internet boom of the late 1990s. He said they were good ideas that just didn't work out.

"Everybody and his brother was in the dot-com business _ everybody," he said. "And only a handful were successful."

Petters was about to describe his part in the 2002 acquisition of catalog and online retailer Fingerhut Companies when court recessed for the day. He was due to return to the stand Wednesday.

Earlier Tuesday, an accountant for PCI testified it was a struggle to get information from Petters' top associates. The defense called Sandy Imdahl to buttress its claims that Petters had little involvement with PCI and that Deanna Coleman, Bob White and other defendants carried out the scheme behind Petters' back.

Imdahl said Coleman and White would not give her access to PCI's bank statements, which she said made her job difficult.

Coleman, PCI's vice president of operations, went to the FBI in fall 2008 to tell them of the fraud. She and White, PCI's chief financial officer, have admitted forging thousands of documents to fool investors. Both have pleaded guilty in hopes of receiving lighter sentences.

Petters faces up to life in prison if convicted.