Accountant James Wehmhoff on Monday became the sixth person charged in the Petters investigation for his role in handling tax matters at the nearly dismantled corporate conglomerate owned and operated by businessman Tom Petters.
Wehmhoff, 67, of Plymouth, is accused of conspiracy to defraud the government and assisting in the filing of false tax returns for Petters and his companies. The onetime executive vice president of finance, tax and treasury for Minnetonka-based Petters Group Worldwide was charged through a procedure known as an information, which usually means the defendant has agreed to plead guilty to the counts named in the document. Wehmhoff is scheduled to enter a plea Friday.
Four other Petters associates have pleaded guilty to various charges of conspiracy, money laundering, and mail and wire fraud since Petters was arrested Oct. 3 at his Wayzata home. Petters has pleaded not guilty to a 20-count indictment that alleges he led a $3.5 billion Ponzi scheme that existed for more than a decade and wiped out investors across the country and overseas.
Also on Monday, a federal judge in Minneapolis imposed new austerity budgets on Petters and four cohorts, including Wehmhoff, whose assets now are being managed by court-appointed receiver Doug Kelley. Petters will get about $142,000 a month while his case wends through court, not the $227,000 he requested. Wehmhoff will get about $8,000 a month. Wehmhoff's request to have the receiver pay his 2007 state and federal income taxes, now totaling about $619,000, was denied on grounds that it doesn't fall under the category of asset preservation.
The four-page information filed against Wehmhoff Monday alleges that he routinely misclassified income to Petters and others in the organization as "loans" and "gifts'' to avoid paying taxes. In one instance he classified a $60 million payment to Petters as a loan when it should have been reported to the IRS as income. The charges also say that Wehmhoff allowed "millions of dollars" in payments to employees to be identified as "gifts" that were not reported as taxable income to the IRS. The information also alleges that Wehmhoff prepared a false tax return for Petters that failed to account for "millions of dollars" of "loans" from Petters Company Inc. to Petters himself.
"Defendant knew that the payments from PCI were not loans and in fact were income to Thomas Joseph Petters," the document says. "No loan documents were ever prepared, interest was not accrued on the books of PCI, and no repayments were made."
Wehmhoff's attorney, Andrew Luger, declined to comment.
Wehmhoff was identified as a co-conspirator early on in the Petters case. According to an FBI search warrant affidavit filed in October, authorities obtained tape recordings of Petters and Wehmhoff discussing Petters' income taxes. On the recording, according to the government, Wehmhoff told Petters that federal auditors were looking at his taxes and would be reviewing Petters' expenses and deductions. The government said the tape recording includes a conversation between Wehmhoff and Petters about Petters "illegally taking mortgage deductions on multiple residences."
A separate FBI affidavit showed that Wehmhoff received a $1 million bonus from Petters in December last year along with a handful of other top Petters' executives.
Monthly budgets set
The assets of Wehmhoff, Petters and four other cohorts have all been frozen and are under the management of court-appointed receiver Doug Kelley, a Minneapolis attorney who recently recommended stripped-down monthly budgets for the group. In a separate hearing Monday, U.S. District Court Judge Ann Montgomery approved most of Kelley's recommendations over relatively few objections.
Montgomery gave a preliminary nod to the $142,000 monthly budget Kelley proposed for Petters, which includes maintaining four homes in Minnesota, Colorado and Florida. Most of Petters' new monthly allowance is not for personal expenses but to maintain his real estate, which Kelley has said he intends to sell later on.
Before she finalizes approval, however, Montgomery said that Kelley and the attorney for Tracy Mixon, the mother of Petters' two youngest children, have details to hash out. Those include how much child support Mixon is to receive, how to handle Mixon's $8,000 in legal fees in a separate paternity action and a request by Mixon's lawyer to seal parts of the paternity case. Mixon lives in Petters' house in Plymouth and is scheduled to get $9,795 a month from Petters' budget -- most of it for a nanny and daycare. Her attorney, Wright Walling, argued that Mixon should get an additional $1,000 or so in child support in keeping with state guidelines.
Judge Montgomery said Mixon could live in the Plymouth house for the time being but warned the arrangement "is certainly going to be revisited."
She also approved reduced budgets for Wehmhoff, Deanna Coleman, Robert White and Michael Catain. She delayed approving new austerity measures for Larry Reynolds, 67, of Las Vegas and Los Angeles, until Kelley and Reynolds' attorney Fred Bruno agree on some issues.
Specifically, Bruno objected to the $2,482 a month allocated for the personal expenses of Reynolds and his wife as "somewhat parsimonious." The scaled-down monthly grocery budget of $528 is just not enough for a couple living in West Hollywood, he argued. It amounts to less than $3 per meal, Bruno told the judge, little more than "macaroni and cheese, grape soda and an apple."
Kelley defended the budget, saying he based it on a national average.
Bruno also requested an additional $900 a month to maintain the office of Nationwide International Resources Inc., the Los Angeles company Reynolds used to convince prospective Petters investors that their money was secured by electronic merchandise that would be sold through major retailers.
Kelley told the judge he saw no need to keep that office open since he's "not aware of any legal business being conducted out of that office at this time."