Tom Petters and his organization nearly imploded eight years before federal authorities were told that he was at the center of a huge Ponzi scheme.

In the first day of testimony at Petters' trial in St. Paul, executives from General Electric Credit Corp. (GECC) and big-box retailer Costco told jurors Thursday that they determined in 2000 that Petters had created false documents to stave off an impending financial catastrophe. The documents included purchase orders for electronic goods and copies of bogus checks.

The witnesses told of a $50 million line of credit with GECC set up by a subsidiary of Petters Co. Inc. in 1998 that by 2000 was having trouble repaying its debts.

Jack Marrone, a GE executive in Chicago, testified that Petters wrote checks to the company in an effort to clear up the matter, but the checks bounced.

Paul Feehan, GE Capital's manager of corporate lending at the time, testified that he called Petters directly to discuss his company's mounting financial troubles. "I got a series of promises. There was always a new excuse and the excuses kept piling up," he said.

Feehan said he and Marrone wrote Costco to check on the inventory of electronics goods that Petters claimed to have bought with the money he borrowed. Petters immediately called back and "read me the riot act," Feehan said. "He was very adamant that I stay away from Costco."

As the credit line languished, Feehan said he'd call the Petters company several times a day, maybe a dozen times a week, demanding payment. The company eventually did settle up, and the GE lending unit terminated the line of credit.

Scott Haggbloom, a merchandise buyer for Costco, said the purchase orders submitted by Petters to GE were for quantities and dollar amounts much larger than normally handled by the retailer.

"I don't write many purchase orders for over $1 million," Haggbloom said when shown a purchase order for goods totaling $5 million.

Government prosecutors are trying to show jurors that Petters submitted bogus Costco purchase orders and other documents to GE Capital in an attempt to hold off the company's collection efforts. The pattern continued over the next decade until Deanna Coleman, one of Petters' top executives, told authorities in September 2008 that he was running a mammoth Ponzi scheme, prosecutors contend.

Proving that Petters used bogus purchase orders and other documents to obtain credit as early as 2000 might undercut his defense team's efforts to portray him as an innocent victim of corrupt executives in his company. The defense argues that those subordinates worked with unsavory, outside business associates to perpetrate a $3.5 billion investment fraud.

Prosecutors are also trying to demonstrate Petters' direct involvement with fraudulent documents, and that Coleman (named Deanna Munson at the time) operated more as an administrator than a decision-maker.

The government's witnesses testified Thursday that most of their business dealings were with Petters directly, although Coleman's name surfaced occasionally in documents entered into evidence.

"I don't even know who Deanna Munson is," Feehan said.

Marrone acknowledged approving loans based on inventory assurances from Coleman. When the checks bounced, he said he talked to Petters.

In 2000, the government says, GE Credit learned that Petters had been submitting bogus documents to make it look like Costco was paying for his company's merchandise when no such deals took place.

After the GE unit confronted Petters, he and Robert White, one of his executives who has pleaded guilty in connection with the alleged Ponzi scheme, sent GE Credit eight company checks totaling $38.5 million. Despite Petters' assurances that the Petters Co. Inc. checks were good, they bounced, the government says.

The trial, in U.S. District Court in St. Paul, is expected to last up to six weeks. If convicted of the conspiracy, fraud and money laundering charges he's facing, Petters, 52, could spend the rest of his life in prison.

David Phelps • 612-673-7269