Petters investors may see 'clawbacks'

Not everyone who invested with Wayzata businessman Tom Petters lost money.

But those who made millions before Petters businesses collapsed will likely still face court efforts to take back that money.

During testimony Friday in Petters' fraud trial in federal court in St. Paul, a key associate acknowledged that at least two investors made as much as $300 million each over several years from the Petters operation.

Under questioning by Petters attorney Jon Hopeman, Robert White, the former chief financial officer of Petters Co., Inc. (PCI), agreed that profits were made by people who invested early in the program, which fell apart last year in the wake of a federal criminal investigation.

Hopeman elicited testimony specifically about Opportunity Finance, which White acknowledged made $300 million from trades with Petters. And he didn't dispute Hopeman's calculation that Epsilon, an Illinois hedge fund previously operated by co-defendant Greg Bell before he created Lancelot Investment Management, also made $300 million.

Minneapolis-based Opportunity Finance is owned by the Sabes family, which is involved in a variety of companies and whose family foundation has a history of charitable contributions, primarily to Jewish causes. Robert W. Sabes, 69, a former owner of Schieks Palace Royale, a Minneapolis strip club, now lives in Las Vegas.

Doug Kelley, the court-appointed receiver overseeing the liquidation of the Petters personal and business estates, has said he may eventually go after profits earned by those early investors, in a move known as a "clawback," to repay investors that lost money in the allegedly fraudulent Petters deals.

"If you can show actual knowledge or constructive knowledge of the fraud, you can take the money," Kelley said in a previous interview. "If someone took out more than they put in, you can take that because it's a phantom profit."

Bell pleaded guilty last month to one count of wire fraud. His hedge fund raised more than $2.6 billion from investors and Bell sunk most of it into PCI. After Petters' arrest last October Lancelot filed for bankruptcy liquidation, claiming losses of $1.5 billion on its PCI investments.

Hopeman spent part of the morning playing tapes of Petters executive Deanna Coleman and White dealing with investors, ostensibly to bolster Petters' contention that his associates ran the alleged Ponzi scheme that the government says bilked more than $3.5 billion from investors.

Under questioning by Hopeman, White admitted to forging financial records and other documents that he said were intended to fool investors into believing the company was buying and selling electronics goods, which the government contends never existed.

Hopeman methodically showed White documents, such as a purchase order from Costco, and asked: "Did you forge it?"

White's answer: "I think I did," or, "Yes."

Though White had some memory issues, for the most part he acknowledged fabricating documents as Hopeman presented them to him.

In his cross-examination of White, Hopeman seemed to be making the point that some investors were making so much money from their dealings with PCI that they either knew it was a fraud, like Bell, or turned a blind eye to any suspicions or problems that may have materialized.

A prosecution witness, Ronald Breckner, president of Data Sales Co. in Burnsville, told Assistant U.S. Attorney Joe Dixon that he had reservations about a 1996 transaction in which he made a $4.9 million loan to Petters to buy surplus home entertainment centers for resale to retailers. Two checks that Petters sent to Breckner for partial repayment of the loan bounced, Breckner testified.

However, Breckner acknowledged to defense attorney Paul Engh, the loan was repaid in six months instead of three and Breckner still made $700,000 in interest.

In testimony Thursday, Twin Cities restaurateur Dean Vlahos acknowledged that he made $42 million on a $16 million investment over seven years before losing the $16 million in the Petters financial collapse.

David Phelps • 612-673-7269