Michael Catain is charged with money laundering conspiracy in what is described as a Ponzi scheme.
Just before Thanksgiving five years ago, Liquid 8 Records CEO Michael Catain gave a Minnesota business magazine a list of things for which he was thankful. It included his wife, two sons and a lovely Minnetonka home.
"This season, I'm grateful to be running a company that is finding ways to expand and prosper during difficult times," Catain said. "It's also great to be so accepted in this community. People in the Midwest are absolutely the best, and I'm trying my best to give back."
Catain will begin giving back today. He is scheduled to plead guilty at 3:15 p.m. in U.S. District Court in St. Paul to a charge of money laundering conspiracy in connection with the multibillion fraud with his friend and business partner, Tom Petters.
Catain is accused in federal documents of prospering by laundering millions of dollars from unsuspecting investors. Today, his businesses are shut down and his house and Bentley automobile are for sale.
Catain's attorney, Michael Colich, said that Catain will take responsibility for his actions. "He has cooperated from the start and will continue to cooperate," Colich said.
Federal investigators say Catain, Petters and several associates conducted a Ponzi scheme that reaped more than $3 billion from investors. Individuals and investment groups put up millions of dollars to fund the purchase and resale of electronics inventory that the government contends didn't exist. The money was allegedly used in other business ventures, to pay other investors, and to sustain lavish lifestyles for the participants.
Catain, originally from Los Angeles, moved to Minnesota in the mid-1990s. He was president of Universal Capital Group, a liquidation and appraisal company. He and Petters did several business deals, including joint ownership of a music company, starting in the mid '90s, according to Colich.
Liquid 8 Records and Entertainment eventually came to produce artists that included everything from Gospel and children's music to John Oates and rapper Vanilla Ice.
In 2003, Liquid 8 and KARE-11 TV created the "Minnesota Idol" competition, a local version of FOX's "American Idol" competition. Catain released a CD by the winner.
In 2004, entertainer Smokey Robinson touted his relationship to Catain as he was about to release his first inspirational album, "Food for the Spirit." A note on the Smokey Robinson Foods' website says: "I look forward to a long prosperous relationship with him at Liquid 8. ...I have long respected Michael Catain since our days at Motown years ago. I'm so pleased to be reunited."
Liquid 8 was affiliated with a holding company called Enchanted Entertainment. Catain lived on Enchanted Point on Enchanted Island in Lake Minnetonka.
Enchanted shell company
Catain started Enchanted Family Buying Co. in 2002. According to federal charging documents, it was a shell company and had no operations. The government alleges that Catain and Petters used false purchase orders at one point to obtain a $20 million loan.
From 2002 to September of this year, a company controlled by Petters routed about $12 billion through the Enchanted company's account at Anchor Bank in Wayzata, the charges say.
Catain kept a percentage of each transaction as a "commission," for a total of more than $3 million, documents allege.
When federal agents went to the Excelsior address for Enchanted, they found an empty room. The office was above a building next to a car wash owned by Catain.
Several Minnesota companies with ties to Catain's record company declined to comment for this story.
Peter Himmleman, a singer-songwriter who had one business transaction with Catain, said he did not have a good reputation. When told about Catain's pending guilty plea, Himmleman said, "My dealings with him have not been pleasant or good ... so this doesn't exactly surprise me."
Although Catain has no known criminal record, his family is not unfamiliar with scandal.
His father, Jack Catain, financed a publicly traded carpet cleaning business, ZZZZ Best, that also turned out to be a multimillion dollar Ponzi scheme in 1987. A Wall Street Journal article at the time called Jack "a mobster and loan shark." Jack Catain headed Rusco Industries Inc., a maker of aluminum building products that "was a front for laundering organized-crime money," the Journal reported.
Jack Catain was convicted on counterfeiting charges but died before he was sentenced. He was also the third husband of Kathy Hilton, Paris Hilton's grandmother, according to the New York Times.
Michael Catain made enemies soon after he moved to Shorewood, according to some neighbors. At least two have been in lawsuits with him. One, John McMasters, estimates police have been called to Catain's house at least 30 times over neighborhood disputes.
"The guy came to town on the back of Petters' money, built a big house on the lake and didn't care that he had neighbors," said Ed Cohen, the attorney for McMasters.
"He's made terroristic threats and assaulted people," Cohen alleged. "He made all kinds of misrepresentations when he built the house and then laughs because he thinks it's funny he screwed people."
According to a police report, Catain threatened to kill McMasters in front of an officer.
"You want to come after my wife? I'll ... kill you," he yelled at his 72-year-old neighbor.
"It looks like he'll have some time to think about how he behaves," Cohen said, referring to his pending money laundering plea.
Michael Catain's 8,000-square-foot log home on 700 feet of shoreline is for sale. The home, which can be seen at www.EnchantedPoint.com, includes an indoor saltwater pool, a home theater and a guest house.
Catain also owns a lavish home in Costa Rica called Casa Tranquila, or Tranquil House, which he rents out.
The website for the house -- casatranquila.net -- describes it this way:
"No expense was spared: teak ceilings, almond beams, imported italian porcelain tiles, stone countertops, a commercial cooktop, mahogany doors, an infinity swimming pool, giant jacuzzi with waterfalls and too much more to list."
Jon Tevlin • 612-673-1702