Receiver seeks to deny extra expense items for Petters associate Reynolds

Sometimes, being a court-appointed receiver requires one to assume the role of Dr. No.

Doug Kelley, the Minneapolis attorney who is overseeing the liquidation of most of the corporate and personal assets of Tom Petters and five of his associates, this week asked U.S. District Judge Ann Montgomery to deny a host of living expense items for Petters partner Larry Reynolds.

Among the items not passing Kelley's muster: satellite television service at two residences, health club dues, unpaid past bills, a monthly allowance for dry cleaning and more food on the dining room table.

Reynolds, who has homes in Los Angeles and Las Vegas, pleaded guilty in October to one charge of money-laundering conspiracy for his role in a $3.5 billion Ponzi scheme allegedly run by Petters for more than a decade. Reynolds operated a company called Nationwide International Resources, which he said was used as a conduit to transfer large sums of investor money to and from Petters Co. Inc. as part of the purported fraud.

Reynolds said that he accepted investors' money transfers to make it appear as though Petters Co. was buying consumer electronic goods for resale, when in fact no such goods existed.

Petters, 51, has remained in federal custody since his arrest Oct. 3 at his Wayzata home on charges of conspiracy, fraud and money laundering. He denies the charges and is preparing for a June trial.

Reynolds, 67, is under house arrest at his Los Angeles residence and can travel only to and from his office while he awaits sentencing. According to federal guidelines, he's facing at least 17 1/2 years in prison.

Kelley filed a response asking Montgomery to deny the requests. He noted that the concept of receivership is to freeze and maintain assets to eventually compensate victims of a crime.

"Viewed in that light, any personal living expenditure above what the court has already approved for Reynolds (or for other defendants) will not be equitable and just," Kelley wrote.

Montgomery is scheduled to hear arguments Wednesday concerning the motions.

Reynolds, through attorney Fred Bruno, said he needs an additional $7,400 to pay overdue bills that have accumulated between the date his assets were frozen in early October and mid-December, when his current living allowance was approved. In addition, Reynolds said that his current grocery allowance averages $2.93 a meal for him and his wife.

"Mr. Reynolds and his wife both have health conditions that require properly balanced diets, including fresh fruits and vegetables and lean meats," Bruno wrote in the Reynolds motion. "Finally, this court should take into consideration that the Reynolds[es] live in Los Angeles, where the cost of living is higher than in Minnesota."

Satellite television for the Las Vegas home that Reynolds owns is needed to demonstrate to potential buyers of the property that the $100,000 home theater and entertainment system works, Bruno wrote. Reynolds needs office space because he has "several pending deals" that could provide income to him and reduce his reliance on an allowance from Kelley and the court, he said.

"It is further important to note that not all of his assets were derived from the allegedly fraudulent activities," Bruno wrote.

Bruno said that Reynolds and his wife, who recently began a divorce proceeding, need dental work and new glasses. As for the health club, he said it's necessary for the Reynoldses, because they "suffer from health conditions that require either routine physical therapy and chiropractic visits or regular exercise involving weight lifting and cardiovascular workouts."

Kelley did agree to an increase in payments for health insurance, noting that Reynolds forgot to include part of his premiums in his first application for living expenses.

Otherwise, however, Kelley was unmoved.

"He offers no new evidence of changed circumstances in support of the pending motion," Kelley added.