Lawyers for convicted felon Tom Petters made their best case Thursday for a new trial for the former Wayzata businessman, arguing that the murky criminal background of an associate hampered defense attempts to win an acquittal for their client.

Appearing before a three-judge panel of the Eighth U.S. Circuit Court of Appeals, attorney Jon Hopeman said defense efforts to expose the extensive criminal background of Larry Reynolds were hampered by a series of district court rulings, including rulings that kept some of Reynolds' background under seal.

"He was Mafia, and one thing the Mafia does is turn legitimate businesses to illegitimate uses," said Hopeman, referring to a Petters defense assertion that Reynolds and others associated with Petters ran the $3.65 billion Ponzi scheme while Petters fretted over real businesses including Polaroid and Sun Country Airlines.

Petters was convicted on 20 counts of fraud, money laundering and conspiracy in December 2009 and is serving a 50-year sentence at the federal prison in Leavenworth, Kan.

Reynolds and three others pleaded guilty for their role in a fraud that lasted more than 10 years and involved the solicitation of investors for the purchase and sale of nonexistent consumer electronic goods. A fourth person pleaded guilty to tax charges.

On Thursday the appeals court appeared skeptical that Reynolds' background and his participation in the highly secret federal witness protection program were crucial to Petters' defense.

"Where's the constitutional right to identify someone" in the witness protection program? asked Judge Michael Melloy.

"There's a right to put on a complete defense," replied Hopeman.

Later, Judge James Lokken said: "The Mafia is not the only criminal organization that engages in criminal activity. I don't see the significance."

But Assistant U.S. Attorney Joe Dixon said Petters' defense team had ample opportunity to cross-examine Reynolds on the witness stand and delve into his criminal background.

"They got to talk about all of his crimes at trial," Dixon said. "They presented nothing that suggested the innocence of Tom Petters."

Dixon said Petters defense attorneys successfully showed jurors "what an untruthful fraudster" Reynolds was and the jury still convicted Petters.

The court will rule later on the Petters appeal.

Like the district court trial, Thursday's appeals session played to a courtroom packed with attorneys who prosecuted the case, federal agents who investigated it, news media and members of Petters' family.

David Phelps • 612-673-7269