Minnesota businessman Tom Petters put the blame squarely on several of his trusted friends Wednesday for the $3.65 billion fraud carried out at Petters Co. Inc.
Testifying for the second day in his fraud trial, Petters said two PCI vice presidents, Deanna Coleman and Bob White, did nearly all the work of running PCI, which was part of his Petters Group Worldwide holdings.
Petters denied asking Coleman or White to prepare fake financial documents such as purchase orders and bank statements, and said he would have fired them if he had known they did.
He also pointed the finger at another friend who did business with PCI, Larry Reynolds. He said he had no idea Reynolds was a disbarred lawyer and convicted felon who was hiding in the witness protection program until his lawyers broke the news to him earlier this year.
But Petters spent the bulk of his time on the stand discussing his involvement in legitimate deals, including real merchandise liquidations through PCI in the 1990s. This decade, he recalled, he put up the money to save catalog and online retailer Fingerhut; licensed the Polaroid brand and put it on DVD players, TVs and cameras before he bought Polaroid altogether; and he bought Sun Country Airlines to keep it flying.
Petters, 52, of Wayzata, grew emotional while talking about the stabbing death of his son, John Petters, in Italy in 2004, which he depicted as a turning point in his life.
While he started PCI in the 1990s, Petters said he was spending "very little" time on it in the years right before his son's murder. And he said he spent virtually none of his time on PCI after that, as he dealt with his grief by throwing himself into charitable work and his newer acquisitions, such as Polaroid.
Prosecutors say PCI was at the heart of a Ponzi scheme that used false documents to induce hedge funds and other investors to make short-term loans that PCI would purport to use to buy electronics goods from various sources to resell at a profit to discount clubs such as Costco and Sam's Club. In most cases the goods never existed and the money went instead to pay off other investors, support Petters' lifestyle or subsidize the other companies he owned, the prosecution contends.
Petters testified when he first took the stand late Tuesday that he was not guilty of any of the 20 wire fraud, mail fraud, conspiracy and money laundering counts against him.
Petters' normally strong voice dropped almost inaudibly low as he said his trust in Coleman had been "as deep as it can go." He also described her as a dependable, energetic worker.
As PCI teetered close to collapse, with investors demanding payment and not enough new money coming in, Coleman went to federal investigators on Sept. 8, 2008. She returned to Petters Group wearing a wire as part of a deal with prosecutors that will limit her sentence to no more than five years in prison. White and Reynolds face up to 20 years in prison but are hoping for lighter sentences in return for their testimony. Petters could be imprisoned for life.
Petters testified he had long wanted to sell off PCI. He said he hated the stresses of the liquidation business and the problems that came up with the complex deals.
"I had the living bejesus scared out of me a whole bunch of times on a whole bunch of transactions," he said.
Petters said PCI was the "golden goose" in his portfolio and would have drawn willing buyers. Coleman would express support for selling PCI but White or others always seemed to be standing in the way, he said.
Prosecutors presented evidence earlier that PCI was the only profitable Petters Group company. But Petters denied that. He said Polaroid made around a $52 million profit one year, Fingerhut became profitable, and that UBid.com, another company in which he owned a stake, also made money.
Petters admitted he made "a horrible mistake" when he advised White to flee the country a week after federal agents raided Petters Group headquarters on Sept. 24, 2008. Investigators recorded their phone call, and it's a major reason why Petters has remained jailed for more than a year since his arrest.