Petters plans appeal of $3.5B fraud conviction

AP News
Posted: Dec 03, 2009 8:41 PM

With Minnesota businessman Tom Petters' planning to appeal his convictions in a Ponzi scheme that cost investors more than $3.5 billion, the fight over his future and how to compensate victims of the fraud will likely drag on for years.

Petters' defense team announced Thursday it planned to appeal his conviction on 20 counts of wire fraud, mail fraud, conspiracy and money laundering. Efforts to recover money to compensate victims will likely net only pennies on the dollar, and prosecutors have not ruled out new charges against others.

"This fight is far from over as far as Mr. Petters is concerned," attorney Jon Hopeman said Thursday. "We have not yet begun to fight."

Petters has been jailed as a flight risk for close to 14 months and is expected to get a sentence of anywhere between 30 years to life in prison, but Hopeman said his spirits remain strong.

"He's doing very well. He's by nature optimistic and resilient and that seems to be carrying him through here," Hopeman said. "He's definitely in a mood to continue the fight."

U.S. District Judge Richard Kyle didn't set a sentencing date after the jury returned its verdict Wednesday but said it likely would be in a "couple months."

Federal prosecutor Joe Dixon declined to say whether anyone else might be prosecuted in the fraud or predict how much victims might get. But he said the compensation probably wouldn't be much compared to what they lost.

A court-appointed receiver, former federal prosecutor Doug Kelley, is leading the effort to seize assets from Petters and others accused in the scheme. They've recovered about $196 million so far.

Hedge funds suffered the biggest losses when the Petters empire collapsed. Their managers thought they were providing short-term loans to finance deals for merchandise, but the goods didn't exist. Instead, early investors were paid with later investors money.

Now-defunct Lancelot Investment Management, of Chicago, lost $1.5 billion, and its CEO, Greg Bell, pleaded guilty to wire fraud. He was one of several defendants who testified against Petters in hopes of lighter sentences. Palm Beach Finance Partners, of Palm Beach Gardens, Fla., which lost $1 billion, filed for bankruptcy Monday.

But prosecutors also put two retirees on the stand who told the jury they'd lost their life savings. They included Ray Ross, who said he was taken in by Petters' reputation as a successful businessman. Ross said he thought he had $491,000 in a fund that lent money to Petters Co. Inc. All the money is gone, and Ross and his wife have only their Social Security to live on.

The Zimmerman Reed law firm is representing "several dozen" individual victims, including retired pastors and missionaries along with several faith-based nonprofits, attorney Brian Gudmundson said. The guilty verdict was welcome but doesn't change their situations, he said.

"Most of our clients are in very desperate straits financially because of this disaster," he said.

And they don't want to go public.

"There's still a great deal of embarrassment about being taken for their life savings," he said.

Kelley's office said he was ill and unavailable Thursday. But he said before the trial he planned to file "clawback" lawsuits against some investors who profited because they got their money out before the scheme collapsed.

Petters' Florida beach home and Colorado condo have been sold, and his Lake Minnetonka home is for sale, discounted to $6.25 million. The receiver sold most of Polaroid for $88 million. Kelley has not said when he'll put Sun Country Airlines on the market.

Thane Ritchie, CEO of Ritchie Capital Management, of Lisle, Ill., which says it lost $200 million, tried but failed to block the sale of Polaroid and to get his preferred candidate named receiver. He's been behind a recent series of critical newspaper ads, a related Web site and a lawsuit against Polaroid executives.

"The receivership is eating up cash at a rate where there very well might not be anything left for creditors at the end of the process," Ritchie spokesman Lew Phelps said.

Ritchie claims his funds' loans to the Petters Group Worldwide umbrella company were secured by Polaroid's intellectual property and his rights as a secured creditor have been ignored.

Kyle plans to hold forfeiture proceedings that may partially duplicate Kelley's efforts. Prosecutors have suggested they'll seek over $32 billion in cash from Petters, plus his real estate. Hopeman said that's overkill since the only property Petters has left is the three suits he wore during the trial.

"Everything else is in Doug Kelley's hands," Hopeman said.