Accountant: Petters execs misused investor cash

Tom Petters and other executives of Petters Co. Inc. (PCI) sometimes used the company as a piggy bank for personal expenses at the expense of investors, the company's top accountant testified Tuesday.

Former executive vice president James Wehmhoff also said the firm's financial records were such a jumble that it was almost impossible to get a true picture of the health of the Petters organization.

"I couldn't get documentation," Wehmhoff testified. "I tried repeatedly but I could never get the information I needed. ... I never caught up with the tax records of PCI."

Wehmhoff said Petters' top aide, Deanna Coleman, controlled the books for PCI.

Petters is on trial in federal court in St. Paul for allegedly operating a massive Ponzi scheme that diverted funds from investors who thought their money was being used to purchase consumer electronic goods.

Wehmhoff had previously pleaded guilty to a charge of assisting in the filing of false tax returns and conspiracy to commit tax evasion.

Wehmhoff testified that he helped prepare tax returns for Petters that significantly underreported his income. He said Petters' income did not reflect "personal loans" he took from PCI, and that in some years, Petters reported negative income.

Wehmhoff discovered that Coleman and chief financial officer Robert White were taking money for personal use from a shortlived Petters funding subsidiary called Onka, he said. "I told them to quit that" or else encounter IRS problems, he added.

Wehmhoff testified that Petters seemed very much in charge of his corporate holdings but acknowledged on cross-examination that Coleman controlled many of the purse strings. Petters' defense is based on the assertion that Petters' associates ran the alleged fraud.

Jurors also heard Tuesday from a consultant whose hedge fund lost $125 million investing with Petters.

James Granat, a consultant with hedge fund Ark Royal Group, said he wanted to do business with Petters because he saw him as a "very successful, entrepreneurial businessman who had done a tremendous amount of deals."

Granat said he knew something was up in the middle of 2008 when interest payments stopped arriving. After the government raided Petters' businesses in September 2008, Granat said Petters told him "everything would be fine."

There will be no testimony today because federal offices are closed for Veterans Day.