After a year behind bars, Tom Petters to face federal jury

It was a quiet display of confidence, defense attorney Jon Hopeman and his client, Tom Petters, greeting each other with a fist bump last winter before a courtroom hearing.

Starting Wednesday, that ballfield bravado is scheduled to be put to the test as federal prosecutors attempt to build a fraud, conspiracy and money-laundering case against the Wayzata businessman before a 16-member jury in St. Paul.

The trial will likely take four to six weeks and holds the promise of riveting testimony from alleged co-conspirators who participated in the purported $3.65 billion Ponzi scheme, the largest in U.S. history until the $65 billion scheme of New York money manager Bernard Madoff came to light.

Petters was once a budding business tycoon, and his corporate holdings grew to include Sun Country Airlines and Polaroid Corp. before he was jailed on Oct. 3, 2008. Because of his wealth and the complexity of his interests, the Petters trial will be part lifestyles-of-the-rich-and-famous, part mind-numbing financial analysis of a paper trail that dates back a decade.

In the end, probably sometime before Christmas, a dozen of those 16 jurors (four are alternates) will determine whether Petters is guilty of any of the 20 criminal counts that could send him to prison for the rest of his life.

The legal teams

The trial pits experienced teams of lawyers on both sides of the courtroom.

Former assistant U.S. Attorney Jon Hopeman is Petters' lead defense attorney. Hopeman has experience in such cases, having successfully prosecuted the previous largest white-collar fraud case in Minnesota history -- Midwest Federal Savings and Loan -- in the early 1990s. His co-counsel in the Petters case is Paul Engh, a vigorous and nimble lawyer who has won several criminal acquittals in his career.

On the government side, the prosecuting team includes Joe Dixon, John Marti and Timothy Rank, three of the top white-collar attorneys in the U.S. attorney's office.

Dixon last year handled the Parish Marketing case, the largest mortgage fraud case in Minnesota history. Marti was involved in the securities fraud conviction of Eldon Phillip Anderson, and Rank represented the government in the conviction of Neulan Midkiff and Jerry Watkins for a $20 million investment fraud.

The government's theory is fairly simple: Petters and a small group of cohorts took money from investors, convinced them the cash was being used to buy electronics, then used the money to pay earlier investors a rate of return that made them think their investment was productive. Like ripples from a stone dropped in the water, the government contends, the circle of investors kept getting bigger as the Petters organization kept needing fresh funds.

The government also says Petters used some of the money to fund his business and property investments and to support a lifestyle that included generous gifts to charities and staff members, gambling excursions and exotic cars.

Petters' defense team will attempt to attack the credibility of former associates who may be painted as having duped him and then turned on him.

Break in case came with tip

The seminal date in the government's case is Sept. 8, 2008, the day that longtime Petters ally and confidante Deanna Coleman sat down with federal authorities and outlined her version of a massive fraud she said was directed for more than a decade by her boss.

Coleman secretly recorded conversations with Petters and others about the scheme.

Legal experts suggest that Coleman will be a key witness to kick off trial testimony.

"You want something very powerful in the opening days of the trial," said Ted Sampsell-Jones, a professor at William Mitchell College of Law. "You want to weave a good narrative to help jurors understand how the case came to light."

On the other hand, Sampsell-Jones said, Coleman could be vulnerable on cross-examination as Petters' attorneys hammer her about her plea agreement with the government, which carries a relatively short sentencing limit of five years, plus prospects of leniency in exchange for her help.

Sampsell-Jones said he envisions a line of questioning that suggests self-serving motives by Coleman, such as, "You knew this was about to crash so you got in with prosecutors first to get the best deal?" He said defense attorneys may try to suggest that she has an incentive to lie. Her lifestyle, including gambling and jetting to Costa Rica for vacations, may also come under scrutiny.

On the other hand, Sampsell-Jones said the government can't sugarcoat Coleman's cooperation. "The prosecution can't paint her as a saint. She was in on it, too," he noted.

Others who were part of the investment operation who are expected to testify are Robert White, who drafted fraudulent purchase orders for electronic goods to help fool investors; Michael Catain, who used an office in his Excelsior car wash as a conduit for large movements of cash to and from the Petters operation, and Larry Reynolds, a Los Angeles businessman who let Petters use his corporate bank account to move billions of dollars, allegedly to create the illusion of legitimate business transactions.

Reynolds has gotten particular attention from Petters' attorneys, who are seeking to link him to past criminal activities that led to his participation in the federal witness protection program.

"This is a key part of our case," defense attorney Paul Engh told Kyle in a pre-trial hearing last week. "This person has a lifelong history of fraudulent activity. He had a scheme and a plan to deceive people, including Mr. Petters."

Key to defense: an attack

"There are a couple of routes to victory for the defendant," said Don Lewis, a former federal prosecutor and dean of the Hamline University School of Law. "First, you attack the government witnesses and their credibility. If you can very quickly get jurors to dislike a government witness because of bad motives or a shadowy past, then that may yield some sympathy for the defendant.

"Second, you attack the government as being abusive, heavy handed, incompetent. Maybe they mishandled a witness," Lewis said. "And, third, most white-collar defendants got to be successful because they can work a room. There might be strength of personality."

One of the mysteries of the trial might be the activities of Frank Vennes Jr., a Petters associate in the investment operation who recruited investors while collecting multimillion-dollar commissions.

Although Vennes appears on tape recordings of conversations with Petters talking about the alleged Ponzi scheme, he has never been charged. Nevertheless, after the Petters operation ceased, his estate was put in the control of a court-appointed receiver who has been liquidating the assets for possible distribution to victims.

James Volling, Vennes' defense attorney, said to the best of his knowledge, Vennes is not on either the government's or the defense's witness lists.

It's unclear whether Petters will testify. Lewis says he wouldn't be surprised if Petters, a lifelong salesman, wants to take the stand.

"I don't think he has much choice," Lewis said. "There is so much direct evidence from people at the center of this about what Tom Petters said and what Tom Petters did. You don't want to allow that to go to the jury unrebutted. There's no deploying his strength of personality without him taking the stand," he said.

"Mr. Petters faces some very long odds, but that said, he is going to trial, and stranger things have happened in criminal cases."

David Phelps • 612-673-7269