Securities Law Blog

Tom Petters, the Minnesota businessman with strong Florida connections, accused of running a $3 billion Ponzi scheme, showed no emotion as the judge read the guilty verdicts yesterday.

The seven woman, five-man jury deliberated for close to 32 hours since early last week, with a break for the holiday weekend. They found him guilty of 20 counts of wire fraud, mail fraud, conspiracy and money laundering. Even though it took five days for the jury to decide, the foreperson said there were no major disagreements in the jury room.

"When we were all going through the e-mails it all came together that he was involved in the big scheme of it," foreperson Jolyne Cross said.

Petters, wearing a gray suit with a white shirt and red tie, stood and stared straight ahead as the verdict was read.

The jury's decision means Petters, who is 52, could face between 30 years to life in prison.

Sentencing will come in several months after victims of his crimes get to have their say before the court. The judge spoke to both the prosecution and defense about sentencing. He said there is a need for a pre-sentencing investigation and it will be months before an actual sentence is handed down.

Prosecutor Joe Dixon suggested prosecutors will seek a tough sentence.

"We consider this the most significant financial fraud in the history of Minnesota and I anticipate seeking a sentence that is commensurate with that offense," he said.

After the verdict was read, U.S. District Judge Richard Kyle asked Petters if he wanted the jury to decide what will happen to his $34 million in assets.

Petters waived his right to have the jury decide his forfeiture of assets, which was on the advice of his counsel. Therefore, the judge will decide what will happen to Petters' assets.

During the trial, Petters testified that he was unaware that his close associates were running the Ponzi scheme through Petters Co. Inc. and only became aware when federal agents raided his Minnetonka headquarters last year.

He also maintained that the raids on his business and home -- which took place September 2008 -- were not necessary because he was in the midst of exposing the fraud himself.

Petters associate Deanna 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.

Coleman secretly recorded conversations with Petters that were heavily used in the trial.

Petters said Coleman told him about the fraud before she made the recordings and he was on the verge of going to law enforcement officials before the raid.

Prosecutors had alleged the scheme worked by using fraudulent documents such as purchase orders and bank statements forged by Petters Co. Inc. Vice Presidents Coleman and Bob White to trick investors into thinking they were financing purchases of TVs and other electronic goods that would be resold to discount retailers such as Sam's Club, Costco and BJ's Wholesale Club.

The government said two other defendants -- Larry Reynolds and Michael Catain -- helped launder billions of dollars by allowing PCI to run it through their own businesses' accounts to make it look like their companies were the source of the nonexistent merchandise.

Defense attorney Paul Engh agreed there had been a large fraud at PCI, but he said Petters was an innocent victim of it.

Engh contended that Coleman, White, Reynolds and Catain carried it out behind Petters' back. He said there was ample reason for jurors to distrust them: All four of them reached plea deals, then testified against Petters in hopes of getting lighter sentences.

Two other defendants also pleaded guilty. Sentencing hearings for the six have not been scheduled.

Engh depicted Petters as a visionary entrepreneur and generous philanthropist who did numerous legitimate merchandise deals, but focused most of his attention in recent years on his acquisitions of catalog retailer Fingerhut, Polaroid, and Sun Country Airlines, as well as his charitable work.

Assistant U.S. Attorney John Marti pointed to evidence that showed most of the investors' money went to pay off other investors, but that some $400 million went to PCI, where he said Petters used it to buy Fingerhut, Polaroid and Sun Country or subsidize money-losing companies in his Petters Group Worldwide empire. He said the $400 million total also included $82 million that flowed into Petters' personal accounts, and that Petters used it to "live the life of a corporate tycoon."