Tapes show Tom Petters knew all ... or knew little

John Welbes

Nov. 5, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- How much Tom Petters knew about the alleged $3.5 billion Ponzi scheme at his Minnetonka firm is at the center of his trial in federal court in St. Paul.

On Wednesday, lawyers for both sides used secretly recorded tapes and transcripts of conversations to try to prove their points. His attorneys tried to show how little Petters knew about the alleged scheme, only to be countered by other tapes from prosecutors that suggested he knew everything.

The defense played tapes from the fall of 2008 in which Robert White and Deanna Coleman, Petters Co. Inc. executives who both later pleaded guilty to fraud-related charges in the case, discussed who knew about what was going on.

"I'm pretty sure I know," White said in a sarcastic tone. "And I can't say for sure if Tom knows."

White then breaks out in laughter.

"Tom knows," Coleman says, "he just doesn't want to think about it."

In another recorded conversation, Coleman tells White that "Tom believes these are real deals half the time."

White responds that Petters "lives in this fantasy world once in a while."

"All the time," Coleman says.

The prosecution countered with a tape from that same month on which Petters is heard saying, "we all knew these were fake (purchase orders) the last five years. All of us. So it's not just me that knew we were committing a crime."

In later questioning, Coleman said White was joking when he talked about Petters' not knowing about all the fake purchase

orders and other documents they had forged to convince investors the company was doing real deals for consumer goods.

Petters, 52, is on trial on 20 counts of fraud, conspiracy and money laundering before U.S. District Judge Richard Kyle. Petters maintains his innocence.

Coleman, a longtime Petters Co. employee, turned whistleblower early in September 2008, when she went to the FBI, depicting Petters as the organizer of a massive fraud. She then secretly recorded many phone calls and conversations with Petters in the weeks that followed.

But the defense has argued Coleman and others committed fraud behind Petters' back. Coleman faced questions from the defense Wednesday about her decision to put her boyfriend on the Petters Co. payroll for $100,000 per year, even though he didn't work for the company.

She also took parts of her $3.5 million bonus in 2008 and made payments ranging from $680,000 to $250,000 to her boyfriend and brother. She testified she was in the midst of a divorce and was trying to hide money from her soon-to-be ex.

Prosecutors displayed an e-mail from Petters to Coleman from late 2003 saying it was absolutely OK to put her boyfriend on the payroll. "You don't have to pay for it, just do it," he wrote. The defense also noted Coleman attended Minnesota Timberwolves games, with $800 courtside seats, even after she entered her guilty plea in October 2008. Her assets since have been put into receivership. She said the bonus money she forwarded to her boyfriend and brother is also now with the receiver.

Questioning by defense attorney Paul Engh also revealed that Coleman was interviewed by the FBI as early as 1998. FBI agents approached Coleman that year to talk to her about Richard Hettler, a former Petters executive, and a dispute over a $400,000 check. Coleman agreed she had a chance to tell the FBI about the fraud scheme at Petters Co. but chose not to.

Testimony from David Margolis, Petters' personal assistant from 2004 to 2008, put some dents in earlier claims from the defense that Petters didn't know the background of Larry Reynolds.

Reynolds ran a wholesale firm in Los Angeles that also aided the alleged Ponzi scheme by convincing investors his company was selling massive amounts of electronic goods to Petters Co. Reynolds has a criminal past under another name and was at one time in the federal witness protection program. Defense attorneys said in opening arguments that if Petters had known of Reynolds' past, he wouldn't have done business with him.

But Margolis said Petters told him in 2004 or 2005 that "Larry had a strange and unique background, maybe mob connections."

Margolis said he would help set Petters' schedule, travel with him, run errands and get groceries. Margolis also made clear that the fraudulent nature of Petters' business deals was kept from him. Petters also frequently asked Margolis to lie about why he couldn't take calls or why he was late to meetings or would blame him for other problems around the office, Margolis said.

"I would just be thrown under the bus and find out about it later, usually," Margolis said.

Margolis also shed light on a potential investor named "Girard," mentioned in several conversations and e-mails presented in court, whom Petters portrayed as key to taking the pressure off Petters Co. in August and September of 2008 when it was trying to find money to repay investors.

Margolis said the reference was to Gerard Lopez, who had ties to Skype, a software program that allows people to make phone calls over the Internet. Lopez is the co-founder of Mangrove Capital Partners, an early investor in Skype.

Margolis also said Petters told him he thought he had attention deficit hyperactivity disorder, or ADHD. He said Petters didn't like attending meetings because they took too long.

Asked by defense attorney Engh if Petters was more of a big-picture guy when it came to running his businesses, Margolis said no. He was good with both the big picture and small details, Margolis said.

Just before court adjourned late Wednesday afternoon, Dean Vlahos, who said he was Petters' best friend, briefly took the stand. Vlahos is the founder of the Champps chain of restaurants and Redstone American Grill. He invested with Petters and lost millions when Petters Co. Inc. collapsed last year. His testimony will continue today.

John Welbes can be reached at 651-228-2175.

Newstex ID: KRTB-0190-39451923