An Interlachen Capital investment manager says the Wayzata businessman also thwarted efforts to investigate inventories.
A partner in a Minneapolis investment firm testified Friday in the federal fraud trial of Wayzata businessman Tom Petters that the high-energy wheeler-dealer and his team moved at a fast pace and were always looking for investors.
"There was always an urgency; there was always a tight time frame to complete a deal," said Gregg Colburn, a partner in the Interlachen Capital Group, which claimed losses of $60 million when Petters Co. Inc. went out of business last year.
Colburn said Lance Breiland, a former Fredrikson & Byron attorney who was general counsel at Interlachen, started talking with Petters about some deals in 2005 shortly after the investment firm opened shop. Colburn said Breiland knew David Baer, an in-house attorney at Petters Group Worldwide.
Interlachen talked about buying into Polaroid in October 2007, but ultimately took a pass, Colburn said. In February 2008, they talked about buying into some Polaroid intellectual property, but someone else funded that transaction, he said.
Finally, in April 2008, Petters approached Interlachen again about a consumer electronics deal that would involve selling televisions through a big-box retailer, Colburn said. He said Interlachen had planned to go to California to inspect the inventory, but Petters said no because it was in a locked facility available only to the insurers of the merchandise.
"That gave us a little pause," Colburn said.
But he said Interlachen decided to go through with the deal because it would have a mortgage on the goods, and because Petters said he was putting some of his own money into the deal. In addition, he said Interlachen had hired an investigator in Minneapolis to check Petters' background. No "red flags" came up, Colburn said.
So he said Interlachen put up $60 million at an interest rate of 20 percent interest over six months.
Petters was slow to begin repaying the money, Colburn said, which prompted a series of Interlachen meetings throughout the summer of 2008 with Petters, his confidante Deanna Coleman, Baer, and Larry Reynolds, a Los Angeles business associate whose company was purportedly selling the television sets to Petters. (Coleman and Reynolds have both pleaded guilty in the alleged fraud conspiracy.)
At first, Petters and his associates said they fell behind on the Interlachen payments because the economic downturn caused retailers to stretch out their payments to suppliers, Colburn said. Then in September 2008, he said, Coleman and Reynolds claimed that the retailers were slow to repay because of an unusual number of returns.
Petters' businesses and home were raided Sept. 24 by federal investigators, a day Colburn said he remembers well.
"I was scheduled to have an update call that day and I hadn't heard back from Deanna [Coleman]," Colburn said. "I was frustrated."
Colburn says he called Coleman but her number wasn't working. Nor was the general number at Petters' headquarters, and the company's website was down, too. He said he left a message on Petters' voice mail. A while later, Petters called and explained that he'd been raided by the feds.
"I said, 'That doesn't sound like good news for you or for me,'" Colburn recalled.
He said he asked Petters if he had really bought any TVs with Interlachen's money. Petters said yes, but he said he couldn't talk at the time and promised to get back to him later, Colburn said.
When Colburn told Petters he intended to call the companies that were supposed to sell the TVs, Petters was adamantly opposed. He said Petters left a voice mail message saying, "You won't get the satisfaction that you're looking for."
Under cross-examination by Petters attorney Paul Engh, Colburn acknowledged that Breiland's previous experience with the Petters' organization when he was at the Fredrikson law firm "had an impact" on the decision to go forward with the electronics deal.
Interlachen Harriet Investments Ltd., which is managed by Interlachen Capital, filed a lawsuit last year saying its $60 million investment turned out to be secured by "imaginary televisions."
The government contends that Petters routinely solicited investments to buy high-end electronics gear at a discount that he claimed would be resold for a profit. But the government says no such merchandise existed, and that Petters would spend the money on other investments, to repay earlier investors and to live an extravagant lifestyle.
Earlier Friday, former Costco vice president Robert Pugmire continued a line of testimony that began Thursday when he said that some purchase orders and large checks Petters had used to "verify" his Costco transactions to a lender were fakes. On Thursday, the first day of a trial that could last up to six weeks, executives from General Electric Credit Corp. and Costco told jurors that Petters had created false documents to stave off an impending financial catastrophe in 2000.
The government says GE Credit learned that Petters had been submitting bogus documents to make it look as if Costco was paying for his company's merchandise when no such deals took place. He ultimately repaid GE Credit $38.5 million and the company canceled his $50 million line of credit.
The trial is being held in U.S. District Judge Richard Kyle's courtroom in St. Paul. If convicted of the conspiracy, fraud and money laundering charges he's facing, Petters, 52, could spend the rest of his life in prison.
Coleman, the confidante turned government informer, is expected to begin testifying sometime on Monday.
David Phelps • 612-673-7269