Petters' troubles cost jobs at Minnesota Teen Challenge

Layoffs at a Minnesota recovery center among the latest effects of the Petters investment scam probe.

By CURT BROWN, Star Tribune

Last update: October 14, 2008 - 11:13 PM

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One of Minnesota's largest drug and alcohol recovery programs has laid off 22 employees, part of the latest fallout from the federal investigation of Tom Petters' alleged massive fraud schemes.

Minnesota Teen Challenge, a Christian-based residential treatment program serving more than 400 teens and adults each year, eliminated more than 8 percent of its 260-person staff, said Administration Director Eric Vagle.

About seven years ago, a major unnamed donor urged Teen Challenge to build a reserve nest egg, director, Rich Scherber, said in a statement. The donor also suggested investing some of his large gifts with Petters' companies.

Vagle said Tuesday that Teen Challenge had invested $5.7 million from that donor in now-bankrupt Petters businesses, reaping $1.2 million in interest income from the reinvestments.

"Now that that's no longer available, we obviously have to adjust," Vagle said. Layoffs include administrative, maintenance and a few direct-service employees at centers in Minneapolis, Duluth and Brainerd. "We believed the money was there because we were actually receiving actual dollars from it and we were getting income," he said. "Now they're no longer paying on those notes."

Vagle declined to name the large donor, but the $5.7 million was invested with the Harvest Fund and, later, the Fidelis Foundation -- two organizations linked to Petters.

Curt Brown • 612-673-4767

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