Petters Associate Details Alleged Ponzi Scheme

Nov 11 2009 | 9:10am ET

Things do not seem to be going very well for accused hedge fund fraudster Thomas Petters.

The Minnesota businessman and hedge fund manager, who is accused of running a $3.5 billion Ponzi scheme, has suffered through several days of damaging testimony at his fraud trial in St. Paul, Minn. Worse yet, his lawyers argue, the judge has barred them from adequately presenting their case.

On Monday, Paul Engh, Petters’ lawyer, demanded a retrial after U.S. District Judge Richard Kyle repeatedly upheld prosecutors’ objections to Engh’s cross-examination of Larry Reynolds, who under direct examination had described in detail Petters’ alleged fraud.

“He lied to the jury about his crimes,” Engh claimed of the man he called his most important witness. “The jury has to hear the truth.”

One thing they won’t be hearing is the judge declaring a mistrial. Kyle immediately denied Engh’s motion.

What they did hear was Reynolds’ testimony on all the fraud he and Petters allegedly engaged in. The convicted felon and witness protection program member said he and Petters began conspiring together more than 10 years ago. Reynolds, who has already pleaded guilty to money-laundering in the case, said he helped lie to auditors and Petters’ investors, drawing up phony documents for the alleged Ponzi scheme and helping Petters launder money.

Last week, the prosecution’s star witness testified: Deanna Coleman, the former vice president of operations at Petters, who agreed to wear a wire after admitting the scheme to authorities last year. In one taped conversation with Petters CFO Bob White, Coleman said that “Tom knows” the purchase orders alleged used in the Ponzi scheme were fake, “he just doesn’t want [to] think about it.”

The jury has also heard from Petters’ top accountant, James Wehmhoff, who called the company’s books a mess, and from a hedge fund manager at Interlachen Capital Management, which claims it lost $60 million in the scam.


In Depth

Debunking Conventional Investment Wisdom

Feb 8 2017 | 3:22pm ET

Due diligence in the hedge fund world has long involved some combination of the...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Future of Private Equity: New Opportunities, New Challenges

Feb 3 2017 | 6:41pm ET

The private equity industry’s astonishing rebound since the financial crisis has...

 

From the current issue of