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A federal judge Monday authorized the seizure of several billion dollars worth of assets related to an investigation of businessman Tom Petters and several of his businesses and associates, who allegedly carried out a massive investment fraud scheme.
U.S. District Judge Ann Montgomery appointed Minneapolis attorney Doug Kelley as a receiver to oversee Petters Group Worldwide, Petters Co. Inc. and related companies. The order excluded Sun Country Airlines, which filed a Chapter 11 bankruptcy petition Monday.
The government said in court pleadings that it has probable cause to believe that the alleged fraud scheme has bilked "in excess of $3 billion" from investors since 1995.
Petters, who has maintained his innocence, is in federal custody on charges of mail and wire fraud, money laundering and obstruction of justice. He is scheduled to appear in court today.
Montgomery acted at the request of the U.S. attorney's office, which sought a temporary restraining order and a permanent injunction against Petters and his associates, at least four of whom have been charged in connection with the alleged scheme.
In her order, Montgomery said prosecutors had sufficient "probable cause" to believe that the defendants would continue to commit financial crimes without a restraining order.
"Weighing the equities and considering the United States' likelihood of success in its cause of action, this Temporary Restraining Order is in the public interest," Montgomery wrote in an order that was signed Friday and kept under seal until Monday while parties were notified.
To support their request, government attorneys filed a sworn statement from FBI Special Agent Eileen Rice in which she outlined the structure of the alleged fraud and revealed a number of large payments to individuals from Petters Co. Inc. The government contends that the payments were the proceeds of fraud.
Among the checks written on the corporate account was one for $500,000 to Petters "for personal use" on Sept. 29 -- five days after federal agents raided his companies and his home and four days before he was charged and detained as a flight risk.
Other checks from that account include two for more than $1 million to Robert White, a participant in the alleged scheme who was charged with mail fraud and illegal monetary transactions.
And Deanna Coleman, vice president of operations at Petters Co. Inc., got $8 million over the past four years. She was charged Monday with conspiracy in a "felony information," a process that usually anticipates a plea agreement.
Jim Wehmhoff, a Petters accountant considered a "co-conspirator" by the government, got $1 million in December. He has not been charged.
The FBI's list of December payouts also includes former Sun Country CEO Jay Salmen, who received $250,000, and Polaroid CEO Mary Jeffries, who got $1 million. Neither has been implicated in court documents regarding the alleged fraud. Neither could be reached for comment.
"Clearly, some of those bonuses are suspect, but others are totally on the up and up," Kelley said Monday. "Mary Jeffries works for Polaroid, and her bonus was well deserved."
The FBI affidavit says the Nevada Gaming Enforcement agency reported that Petters has gambling losses exceeding $10 million. It says Petters "is the largest comped-room guest" at the upscale Bellagio Casino in Las Vegas.
After Petters resigned from his companies last week, Petters Group Worldwide appointed Kelley -- a former federal prosecutor -- to oversee a new management and legal team for the company. Petters Group entities under receivership include Polaroid, Petters Warehouse Direct and a host of smaller companies.
In a statement Monday, Peters Group Worldwide said, "The appointment of Doug Kelley will allow Petters Group and its entities to move forward in an orderly method as he works with them to make business decisions in order to preserve their assets."
B. Todd Jones, a former U.S. attorney for Minnesota now in private practice, said he has seen the government move quickly to take control of a company's finances, but "not of this magnitude."
Even so, Jones said a receiver was needed to make the business decisions for the Petters companies. "Someone has to make sure payrolls are met, bills are paid," he said.
Montgomery's orders trump an order Friday by a state judge in Cook County, Ill., who had appointed a New Jersey businessman as a receiver.
According to authorities, Petters and his associates attracted money from investors to buy and sell consumer electronics that were nonexistent. The operation existed for more than a decade, the government says.
As the criminal case against Petters and his associates takes shape, investors continue to emerge with civil lawsuits. One was filed in federal court in Dallas last week by a Texas group, Apriven Partners, seeking to recoup $41.5 million they invested between June and August as Petters Co. Inc. headed toward insolvency. At least two other funds also sued Petters last week over lost investments, and others have advised investors that they had substantial sums invested with Petters. But Montgomery's preliminary injunction puts discovery in the civil lawsuits on hold.
David Phelps • 612-673-7269