The charges step up the government's case and replace a criminal complaint. A defense attorney says the businessman will plead not guilty today.
Tom Petters, the charismatic Minnetonka businessman swept up in a high-profile fraud investigation, was indicted Monday by a federal grand jury for his role in an alleged $3.5 billion Ponzi scheme that jilted investors around the globe.
Petters faces 20 counts of wire and mail fraud, conspiracy and money laundering for an alleged investment scheme that ran from 1995 through September of this year when one of Petters' closest lieutenants went to federal authorities and blew the whistle.
The 13-page indictment also charges Petters Group Worldwide, his main holding company, and Petters Company Inc., a smaller investment entity central to the fraud allegations, in all but eight money laundering counts. The companies operated out of the same office building in Minnetonka.
The indictment hints that more charges against other parties may be pending. It says Petters was aided in the alleged scheme by Deanna Coleman, the government's informant, business associates Robert White, Michael Catain and Larry Reynolds, "and others known and unknown to the grand jury." Coleman, White, Catain and Reynolds have all entered guilty pleas for their involvement.
Jon Hopeman, Petters' defense attorney, said his client will make a court appearance before a magistrate judge today and "intends to plead not guilty."
"An indictment is just an allegation and we intend to fight it," Hopeman said.
The indictment ratchets up the government's case against Petters and replaces a criminal complaint filed in October by the U.S. attorney's office in Minnesota. It had charged Petters with wire and mail fraud, money laundering and obstruction of justice.
A Ponzi scheme involves promises of quick, high returns for investors. Such schemes use the money from new investors to pay off the old ones. The scheme takes its name from Charles Ponzi, an Italian who immigrated to the United States in 1903.
The indictment says Petters used Petters Group Worldwide and Petters Company Inc., along with their affiliates and subsidiaries, to execute the fraud. The alleged scheme involved soliciting cash from hedge funds, money managers and grass-roots investors such as church groups to buy high-end consumer electronics for resale at high markups to retailers such as Costco and Sam's Club. The government says the goods never existed and the investments were diverted to other activities and to fund high-rolling lifestyles.
The government wants Petters and the two companies to forfeit their assets. The indictment identifies a few accounts holding $1.6 million it says is directly traceable to the alleged fraud, together with eight wire transfers totaling $9,455,000. The government's claim is not limited to those accounts, however, and if it cannot find funds traceable to the alleged fraud, the indictment says it will "seek the forfeiture of substitute property ..."
The U.S. attorney's office released a statement saying Petters faces up to 20 years in prison for each of seven mail fraud counts, 20 years for each of three wire fraud counts, 20 years for a single count of money laundering conspiracy, 10 years for each of eight money laundering counts, and five years for conspiracy to commit mail and wire fraud. Those are maximums, however. If he's convicted, a judge could sentence Petters to less time.
Ted Sampsell-Jones, a criminal law professor at William Mitchell College of Law, said Petters likely faces a heavy prison term, possibly even life, if convicted.
"In high-profile cases, prosecutors will go for everything they possibly can get," Sampsell-Jones said. "They want to send a message that this will not be tolerated."
Hopeman said he has been meeting with Petters regularly to go over his defense. He said the indictment now gives Petters the right to see all the evidence against him "and we will begin to review and study it."
Petters, 51, has been jailed without bond since authorities arrested him at his Wayzata home Oct. 3. It's a steep fall for Petters, a popular philanthropist and fixture in the Twin Cities business scene. Petters was known for buying and trying to revive ailing companies, eventually growing his collection to include holdings in Sun Country Airlines and Poaroid Corp.
That all began crumbling after Coleman walked into the U.S. attorney's office in Minneapolis in early September and agreed to become an informant against her longtime employer in a deal that would save her considerable prison time. Later that month federal authorities raided the company's Minnetonka headquarters as well as Petters' Wayzata home. Since his arrest, nearly a dozen Petters entities -- including the two companies targeted in the indictment -- have landed in bankruptcy court.
Doug Kelley, the court-appointed receiver overseeing the companies, said he believes the government charged Petters' businesses to get the tools it needs to go after whatever assets they might still control.
"Companies can't go to jail. Companies can only pay fines or make restitution," Kelley said. "This gives the government a lot of power."
Someone representing the companies ultimately will need to make a court appearance to make a plea, Kelley said, but he said he didn't expect that to happen "for some time." A judge ultimately will decide what to do with any recovered funds and assets, Kelley said. "Someone with a higher pay grade than me will make that decision."
David Phelps • 612-673-7269 Jennifer Bjorhus • 612-673-4683