Larry Reynolds, sentenced Tuesday to 10 years and 10 months in prison, was blunt in his assessment of onetime partner-in-crime Tom Petters.

"I regret the day I met Tom Petters," Reynolds told U.S. District Judge Richard Kyle on Tuesday before the sentence was handed down. "Greed and stupidity made me continue."

Kyle called Reynolds "a major player" in the $3.65 billion fraud who knew that what he was doing was wrong. "There's no question in my mind, Mr. Reynolds, that you are deserving of a lengthy sentence."

Reynolds, a onetime participant in the federal witness protection program, subsequently served a number of functions for Petters in the Ponzi scheme that collapsed nearly two years ago after a 13-year run.

Most notably, Reynolds, 68, laundered money for Petters through a West Coast bank, taking investor funds and wiring them back to Petters for his use in the fraudulent operation.

Seeking leniency for Reynolds was his daughter, Lauren Reynolds, who read a brief statement to Kyle saying the family "is shocked and saddened by this."

Star Tribune, Star Tribune
Doug Kelley, the receiver and trustee in the Tom Petters bankruptcy case, outside the federal courthouse in St. Paul in April. Kelley said Tuesday that he would be seeking “clawback” payments totaling $57.9 million from former Petters executives and others.

"That fallen hero is my dad," she said.

In separate Petters developments, two judges Tuesday cleared the way for Petters Group Worldwide and Petters Co. Inc. to plead guilty to fraud and bankruptcy charges. Approval of a so-called cooperation agreement will have the effect of winding down the corporate receivership handling the Petters estate and focus collection and repayment activities for creditors and victims in bankruptcy court for less cost.

'Clawback' payments

Court-appointed receiver and trustee Doug Kelley told U.S. District Judge Ann Montgomery and Bankruptcy Judge Gregory Kishel that approval of agreement would be "good for victims of the Ponzi scheme and creditors of the bankruptcy estate."

Kelley also disclosed outside the courtroom that he and his legal team are sending out 97 letters, mostly to former Petters executives, seeking "clawback" repayments of $57.9 million in bonuses that possibly were paid for with tainted money from the Ponzi scheme.

"Many did not know they were being paid with stolen money," Kelley said. "We will evaluate their responses. We'd rather settle than sue."

Kelley said the bonus payments range in size from $8.3 million to $15,000.

Frederic Bruno, Reynolds' attorney who requested a 48-month sentence, said Reynolds had hoped for a lighter sentence, given his cooperation with prosecutors including testimony at Petters' criminal trial late last year.

"It's a little bit more than we thought he'd get," Bruno said. "But it's difficult to ignore history."

Bruno called Reynolds' previous criminal history, which included fraud and mob-related crimes, "the 800-pound elephant in the room."

Assistant U.S. Attorney John Marti said the government did not seek a light sentence for Reynolds because he got off to a "bumpy start" and was at first reluctant to help investigators. Marti also noted the "baggage" Reynolds carried as a previously convicted felon.

"For over 40 years, time and time again, Mr. Reynolds used his skills to defraud others. I hope this is the end of his career," Marti said.

Bruno asked Kyle to recommend an unnamed federal prison camp for Reynolds to serve his sentence. Bruno said he wanted the name of the camp to remain confidential because of potential harm to Reynolds out of retaliation for the crimes that landed him in the witness protection program.

David Phelps • 612-673-7269