Trial looms over alleged Ponzi scam

11:14, October 27, 2009      

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Until the Bernard Madoff scandal broke, it was a Minnesota businessman who stood accused of orchestrating the largest Ponzi scheme authorities could ever recall.

Tom Petters, 52, who seemed to have a golden touch as he built a small merchandise liquidation company into a diversified empire that owned well-known businesses such as Polaroid, goes on trial this week. The size of his alleged fraud: $3.65 billion.

Petters' world began to unravel a year ago when his trusted lieutenant, Deanna Coleman, walked into the US attorney's office with what prosecutors called a "staggering" allegation.

Coleman said that for more than 10 years she had helped Petters run a multibillion dollar Ponzi scheme.

She said they fabricated documents to trick investors into loaning money that Petters would claim to use to buy TVs and other electronic goods that he would purport to resell to big retailers like Costco and Sam's Club.

Those goods never existed, prosecutors claim, saying most of the money really went to finance Petters' lifestyle and to pay off other investors.

Petters is charged with 20 counts, including wire fraud, mail fraud, money laundering and conspiracy, which could imprison him for life. He maintains his innocence, and remains jailed. The trial is expected to take about six weeks, with jury selection starting tomorrow.

Coleman and six other alleged conspirators reached plea agreements, and most have cooperated with investigators.

Petters pleaded not guilty on Dec 2, just a week before Madoff began confessing. The New York financier claimed his investor accounts to be worth more than $65 billion last November, but authorities say his scheme cost thousands of investors at least $13 billion. Madoff pleaded guilty and is serving a 150-year sentence.

Madoff is a major reason that Petters hasn't drawn more national attention, said defense lawyers who aren't involved in either case. One prominent local attorney, Earl Gray, jokingly called him "a petty offender" compared with Madoff.

'More complicated'

Yet Doug Kelley, a former federal prosecutor appointed by the court to try to recover money for Petters' alleged victims, said the Madoff receivers have told him they view the Petters case as "infinitely more complicated" because Madoff kept accurate records, while Petters built a complex web of some 150 corporations now "in various stages of decrepitude".

He failed to deliver on most of the money he promised.

In court filings, prosecutors depict his empire, Petters Group Worldwide LLC, as a house of cards, with legitimate companies such as Polaroid Corp and Sun Country Airlines that gave him a veneer of respectability. But they say most were money-losers propped up by "the heart of the fraud", Petters Co Inc.

Hedge funds and other private investment companies were the biggest losers when it all collapsed.

But the victims, lured by promised rates of return as improbably high as 22 percent, also included faith-based charities and pastors saving for retirement.

Petters' attorney, Jon Hopeman, did not return calls. The US attorney's office declined an interview request. But according to prosecution filings, Petters claims Coleman carried out the scheme without his knowledge.

Source:China Daily
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