Now it's getting personal.

Federal prosecutors have laid claim to the real estate of Tom Petters, the jailed Wayzata businessman whose electronics, retailing and airline empire collapsed last year under allegations of fraud.

Proceeds from Petters' assets could be used to pay his alleged victims. But the government's asset grab could hamstring his criminal defense team, which has been fighting over financial resources since early this year.

"It is but one more erroneous claim we look forward to litigating," Paul Engh said. He and Jon Hopeman are Petters' lead defense attorneys.

The government contends it has the right to seek proceeds from several high-end houses and financial accounts if Petters is convicted of mail and wire fraud charges contained in a 20-count indictment. Petters denies the charges and is preparing for a September trial.

In a filing late last week, federal prosecutors said they would seek to forfeit any real or personal property "which constitutes or is derived from proceeds traceable" to an alleged $3.5 billion Ponzi scheme they say Petters ran for more than a decade.

Specifically, the government says it wants:

• Petters' former personal residence in Wayzata, which currently is listed for sale at $8.25 million.

• A mountainside house in Dillon, Colo., which sold this year for $1.5 million.

• A waterfront house in Lake Worth, Fla., that is on the market for $10.9 million (down $1 million from a previous listing).

• A second Florida house in Winter Park with an assessed value of $655,000.

• A house in Plymouth, where girlfriend Tracy Mixon and their two children live, which is valued at $670,500.

• Two pieces of real estate in Cornucopia, Wis., where the Petters-owned Tam O' Shanter Lodge is located.

The government also wants the balance of funds, if any remain, in five financial accounts in Petters' name.

The properties and the accounts are under the control of court-appointed receiver Doug Kelley, who is collecting and selling corporate and personal assets of Petters and his associates in the alleged investment fraud. Many of Petters' corporate enterprises are tied up in bankruptcy court, where Kelley also is the trustee.

Kelley's goal is to maximize proceeds of Petters' personal and corporate estates for investors and creditors. The government's goal is to maximize proceeds for victims of the purported fraud, which includes investors.

But the proceeds also are being used by the receiver to provide limited living expenses for Petters, including legal fees. According to a trustee report filed April 20, Petters had just $54.09 remaining in his account after paying expenses so far. Most of his valuable real estate remains unsold in a depressed market.

In February, prosecutors advised U.S. District Judge Ann Montgomery, who oversees the Petters receivership, that they intended to seek forfeiture of any assets traceable to the alleged fraud, including the possibility of a "claw back" to the legal fees paid to his attorneys. Engh and Hopeman protested and sought guarantees that wouldn't happen, to no avail.

But Hopeman responded with a flat "No" when asked Tuesday by e-mail if the government's latest forfeiture announcement would crimp the defense effort.

Engh said most of the real estate is highly leveraged to begin with. He said there are other resources available to fund the defense effort, but he did not elaborate.

"We believe they are sufficient," Engh said.

The court can appoint Engh and Hopeman to represent Petters under the Criminal Justice Act, which currently pays $110 an hour. Thus far, Hopeman has been billing $450 an hour through the Petters receivership; Engh has been charging $400 an hour. Those rates are considered reasonable for experienced lawyers in the Twin Cities.

The public arguments over fees may simply be part of the attorneys' trial strategies.

Ted Sampsell-Jones, a criminal law professor at William Mitchell College of Law, said it is more common for the government to seek forfeiture after a conviction, not before.

"On the one hand, the government has the legitimate right to recover illegally obtained assets and return them to the victims," Sampsell-Jones said. "But it gets sketchy if they're trying to restrict his ability to put on a defense."

David Phelps • 612-673-7269