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Continued: Lawyers argue over flight risk of Petters

  • Article by: DAVID PHELPS , Star Tribune
  • Last update: October 8, 2008 - 2:26 PM

With members of his family in the front row of a crowded St. Paul courtroom, an unshaven Tom Petters listened Tuesday as federal prosecutors labeled him an arrogant con man and his 24-year-old daughter Jennifer portrayed him as a loving but troubled father to her and two little children from another relationship.

Petters, who entered the courtroom in handcuffs before the family arrived, mouthed the words "I love you" to Jennifer as he was taken back into custody following a three-hour hearing to determine whether he should be freed pending trial.

Petters, the reputed ringleader of an alleged $3 billion investment scam, should learn this morning whether he can return to his Wayzata home or if he'll remain in federal custody in the Sherburne County jail.

He resigned on Sept. 29 as chairman and chief executive of Petters Group Worldwide after the allegations of massive investor fraud surfaced.

After listening to evidence Tuesday in Petter's detention hearing, which included a surreptitiously taped phone conversation between Petters and one of his associates, U.S. Magistrate Judge Jeffrey Keyes said he will announce his decision at 10 a.m. today.

Federal prosecutors want Petters to remain in jail pending trial, while his attorney asked for the equivalent of home detention and a drug and alcohol evaluation.

Assistant U.S. Attorney John Marti argued that Petters might flee the country if released, based on the taped conversation. In it, Petters urges his associate to go somewhere where there is no extradition.

"That's obstruction of justice," Marti told the court. "Mr. Petters faces life in prison. That creates a huge motive to flee."

But defense attorney Jon Hopeman said Petters has surrendered his passport and has no plans to leave the country.

"He has no false documents, has no cash hordes, no fake ID, no false credit cards. There is no showing of the gathering of tools it takes to be anonymous," Hopeman said.

The government's key witness, FBI agent Brian Kinney, said Petters admitted to another FBI agent that he was "perpetuating a fraud." That admission came on the day that search warrants were issued on his home and at the Minnetonka headquarters of Petters Group Worldwide.

The government also displayed a partial transcript from secretly recorded conversations between Petters and others involved in the alleged fraud scheme. When asked if a set of investors were aware that purchase orders for electronic goods they thought they were buying were fictitious, Petters responded, "[Expletive] no. They don't know they are fakes."

At another point, apparently outlining the 14-year existence of the alleged scheme, Petters said, "The only thing that makes me think there is some divine intervention [is that] when it gets down to it, there is no possibility we could have got away with this for so long."

Kinney said it was well-known at Petters' business that he liked to carry substantial amounts of cash with him and that agents found $10,000 in cash when they searched his home on Sept. 24.

On another tape recording taken after Petters and his associates were starting to feel pressure from investors about their money, Petters said he would "just rather gamble, drink and die."

The Nevada Gaming Enforcement agency has told the FBI that Petters has gambling losses exceeding $10 million.

Under cross-examination by Hopeman, Kinney acknowledged that Petters was not under FBI surveillance in the days leading up to his arrest last Friday. Petters was arrested after Hopeman informed the U.S. attorney's office that morning that Petters intended to fly to a second residence in Florida with his children.

Jennifer Petters said her dad "is extremely devoted to his family." Asked if he would leave the country and disappear, she said, "Absolutely not. He would not leave the country without talking to us."

Jennifer did acknowledge that Petters has had some issues with alcohol and with medication for anxiety. "He sounds loopy sometimes," she said.

In another development Tuesday, William Procida of New Jersey sought an emergency hearing in U.S. District Court in Minneapolis, arguing that he should replace attorney Doug Kelley as the receiver who controls the business operations of the Petters Group Worldwide companies.

At the behest of Ritchie Capital Management and other investor funds, a Circuit Court judge in Cook County, Ill., appointed Procida as receiver.

But U.S. District Judge Ann Montgomery has ruled that her court would retain exclusive control of the matter, and she appointed Kelley, of Minneapolis, as receiver. Montgomery scheduled a hearing for Thursday.

"The vast bulk of the Petters companies' operations are in Minnesota," Kelley said in a Tuesday interview. "We have grave concerns about the power of an Illinois state court to exercise jurisdiction over a Minnesota corporation."

In addition to the creditors, Kelley said there are other stakeholders, including Petters' employees in Minnesota, who need to be given consideration in resolving the case.

The business impact of the Petters' fraud case is wide-reaching and attracting a wave of litigation. The Ellerbrock Family Trust joined the tide this week by filing a federal lawsuit in Minnesota against McGladrey & Pullen, an Iowa accounting firm with its main offices in Bloomington. Ellerbrock, operated largely out of a home in Boca Raton, Fla., is seeking class-action status. Ellerbrock argues that the accountants failed to conduct audits and take other actions that would have uncovered fraud in the Petters operation. Ellerbrock investors are seeking unspecified monetary damages.

Staff writer Liz Fedor contributed information for this story.

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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