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Continued: Sept. 29: Tom Petters resigns amid federal probe

  • Article by: DAVID PHELPS , Star Tribune
  • Last update: September 29, 2008 - 9:21 PM

Twin Cities businessman Tom Petters resigned Monday as chairman and chief executive of Petters Group Worldwide and its affiliates in the wake of a federal criminal investigation into allegations of massive investor fraud.

According to a statement released by the company, Petters made the announcement in a morning meeting with employees at his company's Minnetonka headquarters, which scores of federal agents raided last Wednesday.

"Events of the last few days have made it impossible for me to continue as the leader of these companies. My first concern is that these companies continue to go forward and that you as employees feel secure about working here," Petters said. Through his attorney, he previously has denied any wrongdoing.

Petters' resignation is effective immediately. The company said he will no longer be involved in day-to-day operations of Petters Group and independent operating companies, including Polaroid and Sun Country Airlines.

With about $2.3 billion in revenue in 2007 and 3,200 employees, the Petters Group Worldwide ranked 170th in the Forbes magazine list of the largest private companies.

Attorney Doug Kelley of the Minneapolis firm Kelley & Wolter has been retained by Petters Group Worldwide to assemble a management and legal team to oversee operations of the companies, according to a statement issued late Monday afternoon.

The FBI, Internal Revenue Service criminal division and U.S. Postal Inspection Service searched the Petters Group headquarters, his home and several other locations last week looking for evidence involving an alleged fraud scheme.

According to an FBI affidavit filed to obtain the nine search warrants, Petters and a handful of associates have conducted a decadelong fraud that offered investment opportunities in funds backed by liquidated merchandise that could be sold for a profit. But the government alleges that the purchase and sales orders generated by the funds were fictitious.

By some estimates, the fraud is in the billions of dollars, according to the search warrant affidavit.

Kelley said a new management team would include executives from within and from outside of the company. The legal team also will have outside attorneys within its ranks.

"The main objective of this group is to keep the companies moving forward," Kelley said. "Our plan is to keep operations transparent with the federal government as we move through this process."

Kelley, a former federal prosecutor, said he was asked over the weekend by the company to assemble an independent management and legal team "to take a financial snapshot [of Petters Group], provide stability, keep employees high on a priority list and maximize return for creditors." He said members of the team could be in place as early as this week.

Petters cleaned out his office Sunday evening and spoke to employees for about five minutes in the company cafeteria Monday morning, according to his attorney, Jon Hopeman. It was an emotional parting, he said.

"Given the notoriety from the unsealing of the [FBI] affidavit [late Friday], he felt he was a distraction," Hopeman said. "He couldn't run the business."

David Phelps • 612-673-7269

  • about this series

  • The Star Tribune's coverage of the federal fraud case against entrepreneur Tom Petters and the struggles of Petters-owned Sun Country Airlines.

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