Petters insists in testimony associates hid fraud

AP News
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Posted: Nov 19, 2009 9:13 PM

Minnesota businessman Tom Petters stuck to his story Thursday that he didn't know that his close associates were carrying out an enormous fraud at Petters Co. Inc., saying he "chose not to look" too closely at what was happening.

"I had no idea there was a massive crime committed at PCI. I was suspicious," Petters said. But he said federal agents raided his headquarters before he could bring in auditors to see if his fears were justified.

When prosecutor Joe Dixon asserted Petters had pulled $400 million out of PCI over the years to support himself and his other companies, Petters replied, "That's debatable."

Asked if more than $80 million had flowed from PCI into his own personal accounts, Petters acknowledged that financial statements generated by investigators show the money did.

Defense attorney Jon Hopeman said he expects to rest his case after about 15 minutes' worth of questions for Petters on Friday morning. Prosecutors said they may call some rebuttal witnesses, but both sides said they expect the case to reach closing arguments Friday. It's unclear when the case will go to the jury.

The government alleges that PCI was mainly a Ponzi scheme that cost investors $3.65 billion when it collapsed last year. Investors were told their short-term, high-interest loans would be used to buy electronics from distressed retailers like Circuit City, or other suppliers, which would be resold to discount chains like Sam's Club, Costco and BJ's Wholesale Club. Prosecutors say the goods didn't exist and that the money went mostly to pay off other investors _ or into the Petters empire.

Petters is charged with 20 counts in all and faces life in prison if convicted.

In his second full day on the stand, Petters testified Thursday that he did many legitimate deals through PCI in the 1990s. He said didn't know PCI's deals in later years were mostly fraudulent.

He insisted he had very little to do with running PCI in recent years, even though he was its president and CEO, and even though PCI was one of the few profit generators in his umbrella company, Petters Group Worldwide, which also included Polaroid and Sun Country Airlines.

He continued to claim the fraud was carried out by two PCI vice presidents, Deanna Coleman and Bob White, aided by outside businessmen Larry Reynolds and Michael Catain.

Petters initially denied Dixon's claim that Petters and Coleman had an "intimate relationship" for about a year and a half after Petter's son, John Petters, was stabbed to death in Italy in 2004. Petters, Coleman and other close friends of his went to Italy to attend the killer's trial.

"After my son's murder trial, a situation occurred with Deanna. It was not an intimate relationship," Petters said. He then acknowledged reluctantly they had, in fact, had a sexual relationship for a time.

"You had the closest of closest relationships with Ms. Coleman," Dixon said.

"That is true," Petters replied.

"And you're testifying she hid from you a $3 billion fraud within your own company?" Dixon asked.

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"Yes, I'm testifying that," Petters said.

Coleman exposed the scheme to federal authorities in September 2008. She agreed to cooperate with the case and has a plea deal that ensures she'll spend no more than five years in prison, and possibly much less. White, Reynolds, Catain and some other defendants who all pleaded guilty face longer potential sentences and testified against Petters in hopes of leniency.

Dixon went over numerous e-mail exchanges between Petters and Coleman _ as well as transcripts of phone calls and conversations she secretly recorded after she went to the feds _ that suggested he was much more involved in PCI than he was admitting. Petters insisted Dixon was taking those statements out of context.

Dixon got under Petters' skin when he suggested that Petters wanted the high life of a "corporate tycoon" with expensive homes, private jets and luxury cars such as $200,000 Bentleys.

"No I didn't want to live the life of a corporate tycoon. I tell you I take offense to that," Petters said, raising his voice.

While most of the investors who lost money were hedge funds, they also included some individuals who put their life savings into at least one investment vehicle that loaned money to PCI.

"You took their money and spent it," Dixon said.

"I guess we did," Petters replied.

"And now they have nothing," the prosecutor said.

"That's absolutely correct," Petters conceded.