Petters' statement comes back to bite

Was it a confession? Or just a run-of-mill business expression?

That's the crux of an argument in federal court between prosecutors and jailed Wayzata businessman Tom Petters.

An agent for the Nevada Gaming Control Board testified in a pretrial hearing Wednesday that when Petters was approached in his Las Vegas hotel room in September and asked about an alleged fraud and some missing merchandise, the Wayzata businessman said: "I am the guy in charge and I will bite the bullet if I have to."

The agent, Jesse Prieto, accompanied two FBI agents -- one from the Minneapolis office -- on a visit to Petters' suite at the Bellagio Hotel on the Las Vegas strip just as agents in Minnesota were executing their Sept. 24 search warrant on Petters' business in Minnetonka.

Prieto said Petters initially denied that there was any missing merchandise to back up promissory notes he had signed with investors. But Petters eventually acknowledged to FBI agent Eileen Rice that "no merchandise exists," Prieto said.

But Petters attorney Paul Engh suggested during his cross-examination of Prieto that the term "bite the bullet" was inconsequential in the context of the FBI agent's questions because the term has been "a mantra of his [Petters] for the last 20 years."

Testimony was presented before Magistrate Judge Arthur Boylan during a hearing on pretrial motions in federal court in St. Paul. Petters is accused of masterminding a $3.5 billion fraud in which investors thought they were lending money for the purchase and sale of electronic consumer goods that the government alleges never existed.

Boylan took the matter under advisement.

Still, the testimony of Prieto, a five-year agent with the gaming board, provided detailed insight into the government operation that Wednesday morning in September when the visit to Petters in his hotel room was timed with the raids on his business back in Minnetonka and, a little later that morning, on his home.

Questioned in Bellagio suite

Prieto said he and the two FBI agents took back stairs and elevators with the Bellagio's security manager to reach Petters' suite on the 23rd floor. The security manager knocked on the door at 7 a.m. and Petters answered in a bathrobe with a cell phone in his hand. Rice asked him to end the call and asked to come into the room, Prieto said.

Petters let them in and they sat down at the dining room table. "He asked if he was going to be arrested," Prieto said. Rice replied, "No, we'd just like to talk to you and ask you some questions."

"Petters said 'I sign a lot of things that I don't look at,'" Prieto said. Rice said there was no merchandise in warehouses to secure the notes. Petters first said there was merchandise, then said it was being delivered and then acknowledged that none existed, Prieto said.

Then Petters' corporate attorney called and advised Petters to not answer any more questions, Prieto said. During the 30 to 40 minute exchange, Petters was "pleasant and relaxed."

On a separate issue, regarding the payment of attorney's fees to Petters' attorneys, Boylan said that matter is up to U.S. District Judge Ann Montgomery. She is overseeing the frozen assets of the Petters corporate estate and the personal estates of Petters and several close associates who have pleaded guilty for their roles in the alleged $3.5 billion Ponzi scheme.

Engh and co-counsel Jon Hopeman have not been paid since late last year. They claim their unpaid bills exceed $300,000 and without further funding they will have to withdraw from the case. The government claims the proceeds from a fraud should be saved to reimburse victims.