Tom Petters' attorneys will likely question the oversight of Larry Reynolds, who could be the fall guy.
As one of 18,000 people who've been in the federal government's witness protection program, Larry Reynolds was given a new identity and asked to follow a few simple rules.
Don't talk to the media. Don't return home, even for funerals. Don't hang around with former criminal associates, friends or former neighbors.
And, by all means, don't commit a crime.
For Reynolds, who was known in his hometown of Brockton, Mass., as Larry Reservitz, the rules proved too much.
He would visit occasionally with a lawyer he knew from college on trips to New York. He drew attention to himself by playing in high-stakes poker tournaments. And, according to Reynolds, he helped launder billions of dollars in a Ponzi scheme allegedly masterminded by Wayzata businessman Tom Petters.
Petters goes to trial next month on conspiracy, fraud and money-laundering charges, and Reynolds' sordid history and participation in the witness protection program could add a rich new subplot to the lawyers' arguments.
The criminal history of Larry Reservitz could give ammo to Petters' attorneys as they attempt to raise questions about the government's oversight of its own witness, said lawyers not affiliated with the case.
"This is a dream guy for a defense attorney," said St. Paul lawyer Ron Rosenbaum. "You don't get into the witness protection program because you're a Boy Scout," he said.
Rosenbaum said he expects Petters' lawyers to portray Reynolds as a central figure in the alleged $3.65 billion Ponzi scheme.
Recently unsealed documents in the Petters case reveal that Reynolds, one of his key cronies in the alleged fraud, appears to have a sordid criminal background that was largely hidden from public view for the last two decades through the witness program.
Reynolds' alter identity as Reservitz, a disbarred lawyer with a history of committing fraud, can be pieced together in a thick stack of heavily redacted old newspaper articles and court decisions that were filed late last week by Petters.
Petters' attorneys, Jon Hopeman and Paul Engh, argued that Petters may have been a victim of Reynolds' money-laundering activities. Reynolds "has a history of concocting and leading grandiose fraudulent schemes and then making secret deals with law enforcement once backed into a corner, just as ... was here," they wrote.
Still a tough case to prove
"He's the Petters fall guy," said Bradford Colbert, a state public defender who teaches law at the William Mitchell College of Law. "You can argue that he's the guy behind all of this and Petters was taken advantage of by this Reynolds."
That still might be difficult to prove, however. Government prosecutors may not need to call Reynolds at all because they will have the testimony of other direct participants in the alleged fraud on which to help base their case. The U.S. attorney's office declined to comment Wednesday.
Federal prosecutors do not have to call Reynolds as a witness in the case. But given the intense defense interest in the background of Reynolds, he could be called as a hostile witness by the defense team.
The courtroom drama that could follow would pit lawyers representing Petters, the well-known and once philanthropic Twin Cities businessman who owned Sun Country Airlines and Polaroid even as he allegedly duped investors out of billions, against Reynolds, who engaged in insurance fraud, check forgery and drug trafficking, fled the country for a period and once wore a wire as a government informant.
Reynolds' attorney, Frederic Bruno, said it would be a mistake by the defense to attempt to focus the case on his client.
"It's a classic red herring defense. Mr. Reynolds is an attractive target and makes an interesting sideshow but ultimately it is not going to work," Bruno said. "This is a Hail Mary shot."
The witness security program, known as WITSEC, began in 1971 in an attempt to protect witnesses from harm because of their cooperation with authorities. Its most common use is in mob-related investigations and gang activities.
Participants in the program are often given new identities and moved to new towns. The government provides some money to help witnesses move into their new lives and helps them find jobs and schools.
The program operates under the auspices of the U.S. Marshals Service. Since its inception, more than 8,200 witnesses and 9,800 family members have received protection, been relocated or given new names.
"If you're in the program, the government is trying to protect you," said Stephen Cribari, a professor of law at the University of Minnesota. "They're not doing it for fun."
Program participants are prohibited from talking to the media, returning home, associating with former associates, friends and neighbors and from committing a crime.
Program can't reform you
But some participants in the program go back to their old criminal ways. Notorious Mafia informant and hit man Sammy (the Bull) Gravano was moved from New York to Arizona after testifying against members of the mob. However, Gravano was eventually sent to prison after he was convicted for operating a drug ring with his new identity.
Reservitz dropped off the radar in the mid-1980s after having become an undercover government informant and testifying against mob figures, according to court documents. Reynolds then pops up in California, where he eventually grew wealthy and bought million-dollar homes in Los Angeles and Las Vegas. According to the FBI, Petters met Reynolds in Los Angeles in the late 1990s and they began doing business together.
Reynolds pleaded guilty to conspiracy to commit money laundering late last year for his role in handling billions of dollars in money transfers, allegedly to help Petters create the illusion of a successful consumer electronics business. Reynolds said he was paid about $6 million for his efforts.
David Phelps • 612-673-7269