Petters feared mob hit

His longtime business partner, Deanna Coleman, was on the witness stand again Tuesday, but it was Tom Petters who did most of the talking.

On long segments of surreptitious tape recordings made in September 2008 and played in federal court, Petters talked like a businessman at the end of his financial rope and even expressed concerns that he could be a mob target.

The tapes, recorded two days before federal authorities raided his businesses and home last year, revealed that Petters feared that two of his investors had mob connections and might want him dead.

"Nobody's paying us," Petters said on the 30-minute recording made Sept. 22, 2008, by federal authorities with the help of Coleman. "I can't stand lying to people every day."

"We're at a breaking point," Petters said on the tape. "I can't stand where we are. ... None of us are OK. ... We've got problems. I'm trying as hard as I can to find a way out of this. I don't think we can all think clearly anymore."

He said he was afraid that Robert W. Sabes, 69, formerly of Wayzata, and his son Jon R. Sabes, 43, of Wayzata, who authorities say had invested $17 million to $19 million, might kill him.

"Jon Sabes needs to calm down a bit," Petters said, adding that he believed Sabes was connected to organized crime. "They are bad, bad people. I think he'd kill me."

At that point, prosecutor Joe Dixon stopped the tape and asked Coleman whether she ever saw any evidence of someone wanting to kill Petters. She said no.

Reached on his cell phone Tuesday, Robert Sabes, who now lives in Las Vegas, declined to comment in detail.

"I think he's been watching 'The Sopranos' too much," he said. "I'm not going to say any more."

The Sabeses run a commercial finance company in Minneapolis called Opportunity Finance LLC. Petters owes the company nearly $19 million, court documents show. Robert Sabes' many businesses included the Minneapolis strip club Schieks Palace Royale, which he sold in 2007.

Before the tape was played, Coleman dabbed her eyes with tissue and became barely audible when she described her decision to go to the FBI and turn herself in. "I was in too deep," she said when asked why she just didn't quit. "I turned myself in."

In testimony earlier Tuesday, Coleman testified how millions of dollars of investors' money was funneled from Petters Co. Inc. into other companies in his business empire, including financing lavish bonuses for employees. Under cross-examination by defense attorney Paul Engh, Coleman acknowledged receiving a series of bonus checks in 2006 that totaled $7 million.

Under Engh's questioning, Coleman also acknowledged diverting more than $250,000 from a Petters financial subsidiary for personal use.

"You stole that money," said Engh.

"Yes," replied Coleman.

But during most of the cross-examination, Coleman said she usually was following the instructions of Petters when she wrote checks or created false documents to mislead investors about the location of their funds.

Engh replied, "Did you practice that answer before you got here?"

Christmas bonuses

In 2004, Coleman, who served as vice president of operations at Petters Co. Inc., wrote to Petters: "Petters Co. spends money like it grows on trees," according to trial evidence.

Coleman, who herself received a $1 million bonus in 2004, said Petters invested in property in Wayzata and a company in California, and he used Petters Co. Inc. money to fund his Petters Warehouse Direct business.

In February 2006 she asked in an e-mail: "Is there any reason we don't close these [Petters Warehouse Direct] retail stores? It would be cheaper in the long run."

Petters Co. Inc. was paying $3.9 million annually for the executive team at Petters Group Worldwide. She detailed numerous bonuses at the end of 2006 and the end of 2007 for Petters employees, most of whom did not work for Petters Co. Inc.

Those included Mary Jeffries, who ran Polaroid; an employee of the John T. Petters Foundation, and Scott Moellman, a close friend of Coleman's.

One e-mail quoted Petters after the 2007 bonuses saying: "I made a mistake on Christmas bonuses and won't do it ever again until we're out of this mess."

Coleman will return to the witness stand for the third day today.