When Minnesota businessman Tom Petters bought Polaroid in 2005, he had visions of reinventing the pioneer of instant photography and returning some tech luster to an iconic American brand nearing the scrap heap.

Today, the snapshot of Polaroid's future is as blurred as ever. Petters sits behind bars, charged with swindling about $3 billion from investors including religious groups and charities. Though he has said all along that he will fight the charges, four of his cohorts have pleaded guilty. Nearly all of his fiefdom, save for Polaroid Corp., languishes in bankruptcy.

Polaroid, which operates out of the Petters Group Worldwide headquarters in Minnetonka, has hired New York investment bank Houlihan Lokey to explore options. Angry investors are circling, meanwhile, anxious to recover whatever money they can find amid the Petters debris. Polaroid is an obvious target.

It's unclear though, whether the aggrieved investors can squeeze anything from the former Fortune 500 company, which one industry analyst referred to as a "beaten vagabond."

Federal authorities say Petters lured investors by telling them he had arranged to buy high-end electronic merchandise for resale through big-box retailers. No such merchandise existed, according to government documents and the people who have pleaded guilty in the case.

That's one reason that investors and the government are concerned that shopworn Polaroid remain viable.

"It's important because it's something we can look at that we know is real. Given what's gone on there, it's hard to tell what's real and what's not," said Michael Terrien, a Chicago attorney representing the trustee for five investment funds run by Lancelot Investment Fund of Northbrook, Ill. The hedge fund sank $1.5 billion into Petters and has itself plunged into bankruptcy.

Polaroid is real in a branding-licensing sort of way. Though it shuttered some plants when it stopped making instant film last winter, it still employs about 300 people and had sales of more than $1 billion in the past 12 months.

But Polaroid is losing money like nearly all of Petters' myriad business entities, Petters' attorney said in court recently. Polaroid also faces an assortment of recent lawsuits, including patent infringement allegations and accusations that it breached long-standing distribution agreements in Latin America.

One was filed by a Brazilian distributor in early September, before the Petters criminal investigation became public. The distributor contends that thousands of Polaroid-branded digital cameras it sold in 2006 and 2007 were defective and that Polaroid refused to address the problem, then cut off contact.

According to NPD Group, a research company in Port Washington, N.Y., that tracks retail sales of consumer electronics, Polaroid is not in the Top 10 for U.S. sales of either LCD televisions or digital cameras. Much rides on the marquee product Polaroid launched in July: the inkless PoGo cell phone printer, which faces a mean Grinch of a holiday retail season amid the faltering U.S. economy.

Though Polaroid CEO Mary Jeffries hasn't been implicated in the Petters investigation, she remains on the periphery. She had served as chief operating officer of the Petters Group Worldwide holding company, a post she resigned in the wake of the investigation. And she was named in an FBI affidavit as having received a $1 million bonus in December from the same bank account that was used to pay Petters and two associates who have pleaded guilty in the case. The affidavit by FBI special agent Eileen Rice lists the payments under the heading "dissipation of fraud proceeds."

Neither Jeffries nor Polaroid are targets in the criminal case, and Doug Kelley, the court-appointed receiver for the Petters companies who serves as Polaroid's chairman, defended Jeffries' bonus as well-earned.

Jeffries declined to be interviewed, but responded in writing to questions. She acknowledged that the Petters investigation has challenged Polaroid, but insisted that its operations are "solid."

"We will continue as an independent company with new financing," Jeffries wrote.

Polaroid has been through the wringer before. Three years ago, Petters paid $426 million for the company, buying it from a private equity firm that had plucked Polaroid from bankruptcy. Petters used $150 million of his own money and $250 million from commercial lenders that have been paid back, making the Petters holding company the sole owner of Polaroid.

Petters essentially bought the rights to the valuable Polaroid name, which he had been licensing for a few years, sticking it on flat-screen televisions and personal DVD players. He has since expanded the brand to digital cameras, digital picture frames, scrapbook software, photo storage drives and the new PoGo printer.

It's been a smart strategy, said Robert Sprung, chief executive of the New York brand consulting firm TippingSprung. Sprung called Polaroid "one of the venerable great brand names," and said that Petters has been "extremely logical and conservative" in extending its brand to other consumer electronics. It's avoided big branding gaffes such as the Hooters airline experiment, Harley-Davidson cake mix and Cheetos lip balm.

Still, the jury is out on the PoGo, Polaroid's first new product offering in years. A miniature inkless printer that can fit in a pocket, the PoGo instantly prints pictures off Bluetooth-enabled cell phones. It retails at CostCo, Wal-Mart, Best Buy and Target stores for $99 to $150.

Whether PoGo will become a great holiday gift gadget remains to be seen.

Chris Chute, research manager with Framingham, Mass.-based research group IDC, doubts the device will find a big market. Young people have so many ways to share digital photos, such as Facebook, that Chute doubts many will pay for another device. "Younger people may have been interested in a product like this 10 years ago," he said. "This is just one tiny little option in a plethora of options."

PoGo's secret sauce -- and most profitable part of the product for Polaroid -- is the patented photographic paper it uses. The paper is embedded with billions of colored dye crystals that the printer zaps with heat to produce an image. The paper and the rights to the printer technology come from Zink Imaging Inc., a stand-alone company in Bedford, Mass., which spun off of Polaroid in 2005. Petters has a minority stake in Zink.

Zink, backed largely by venture capital, has licensed its printer technology to several companies. Other companies are producing Zink-enabled printers, according to Zink board member David Baum, a partner at Stage 1 Ventures in Waltham, Mass. One is Tomy Co. Ltd., a Japanese toymaker that has launched an instant digital camera in Japan called the xiao TIP-521.

Sales of the PoGo have been softer than expected because of the tough economy, Jeffries said, but sales of the photographic paper, which sells in packs of 10 or 30 sheets, are about double company expectations. She remains convinced that people still want to hold that picture in their hands, not unlike that shake-to-dry Polaroid image with the fat white border that thrilled people half a century ago.

"Research says that, even if they have a digital copy of a photo, 63 percent of consumers still desire a hard copy," Jeffries said.

Jennifer Bjorhus • 612-673-4683