Petters trial to stay in St. Paul for now

Another strange twist in the criminal trial of Wayzata businessman Tom Petters surfaced late Monday when the defendant's attorneys announced their intent to withdraw from the case.

The issue? Money.

Petters attorney Jon Hopeman said the legal team he has assembled to represent Petters cannot continue given the recent opposition of the U.S. Attorney's office to attorney's fees being charged in the case. Hopeman also accused the government of "meddling" in the case by trying to control its purse strings and asked that charges against Petters be dismissed.

"The defense of Mr. Petters is a just cause, and one we wish to continue. But we cannot when the government cuts off resources," Hopeman said in his motion to withdraw. "It is fair to estimate that the cost of mounting a proper defense will approach $5 million -- perhaps more."

Hopeman and attorneys for other defendants in the alleged fraud case are being paid by a court-appointed receiver who controls the corporate and personal estates of Petters and his former associates.

Hopeman's firm so far has billed the receiver for fees totaling $581,000 but has received less than half that amount since taking on the Petters case in October.

The government challenged the fees late last week on the grounds that the Petters-related funds need to be preserved to compensate victims of the alleged $3.5 billion Ponzi scheme.

"This is not work for the fainthearted," Hopeman wrote. "There isn't a law firm in Minneapolis/St. Paul that would accept Mr. Petters' representation without assurances of an adequate budget."

Petters' defense team has asked for postponement of an important pretrial hearing Wednesday until the fee issue, which is before U.S. District Judge Ann Montgomery, is resolved. Meanwhile, receiver Doug Kelley is attempting to get the Petters corporate insurer to reimburse the legal fees through "directors and officers" coverage.

No venue change

On another potentially controversial trial matter, U.S. District Judge Richard Kyle on Monday denied an attempt by attorneys for Petters to move the trial to a new venue on the grounds that pretrial publicity would make it difficult to find impartial jurors.

"While some of the media coverage, admittedly, has been less-than-flattering to the defendant, the court cannot conclude on the present record that it has been 'so inflammatory or accusatory' that one must presume defendant cannot obtain a fair trial here," Kyle wrote in a three-page order.

Kyle said he would revisit the issue when prospective jurors are interviewed at trial time to determine if they are biased or hold predispositions about Petters.

Petters attorneys had argued that the amount of print and broadcast publicity generated through coverage of the scheme that Petters is alleged to have masterminded made it impossible for him to get a fair trial. They suggested moving the trial to Des Moines or Milwaukee.

Under past court rulings, Kyle noted, trials can be moved to new locations only in "rare and extreme cases." The Petters case did not meet that threshold, the judge said.

Petters has pleaded not guilty to charges of fraud, money laundering and conspiracy for an alleged fraud scheme that operated through Petters Co. Inc. Authorities broke up the alleged scheme in late Septembers. So far, five of Petters' associates in the operation have pleaded guilty to various fraud and conspiracy charges.

In motions filed Sunday, federal prosecutors argued against a change of venue, citing "additional costs on taxpayers." The government also said Petters and his attorneys had "fostered and promoted" some of the pretrial news coverage through news conferences, interviews and news releases.

In one instance, the government said, Petters coached his girlfriend, Tracy Mixon, before she did a television interview to describe him as a family man and to "disparage" onetime associates who became cooperating witnesses for the government.

On other legal issues scheduled to be argued before Kyle on Wednesday, prosecutors rejected the notion raised by attorneys for Petters that the underlying search warrant used to investigate the alleged fraud scheme was unconstitutional. Rather, the government said, the warrant was appropriately drawn after describing Petters and his business operations as "permeated by fraud."

The government also said it would present evidence backing up an admission of culpability that it says Petters made to an FBI agent as the search warrant was being executed on his company and home. Attorneys for Petters argue he was not given the proper Miranda warning by the agent.

David Phelps • 612-673-7269