Business

MINNEAPOLIS (WCCO) ― Federal officials have charged Twin Cities businessman Tom Petters with mail fraud, wire fraud, money laundering and obstruction of justice. Petters, 51, was arrested without incident at his home in Wayzata, Minn. Friday morning.

Sources tell WCCO-TV that FBI officials arrested Petters, who had been under constant FBI surveillance for the last week, because they learned he was preparing to flee the country.

Petters and several other associates have been under investigation for allegedly scheming to defraud investors of $100 million or more since the 1990s, according to a search warrant.

Petters was charged without a grand jury indictment in federal court Thursday and made his first appearance in court Friday at 3 p.m. in front of U.S. Magistrate Franklin Noel.

His next court hearing will be held on Tuesday, Oct. 7 at 2 p.m. and a federal judge ordered Petters jailed until then to give prosecutors time to explore evidence.

Another defendant also charged in the complaint, Larry Reynolds, 67, of Las Vegas, Nev., was arrested Friday in Los Angeles, Calif. Reynolds is also charged with mail fraud, wire fraud, money laundering and obstruction of justice.

Several federal agencies, including the FBI and the U.S. Postal Inspection Service, raided Petters' company, Petters Worldwide Group, last week. Federal agents seized documents ranging from 1995 through the present.

On Monday, Petters resigned as CEO of the group and is no longer involved in the company's day-to-day operations. Sun Country Airlines and Polaroid are both owned by the group, which had $2.3 billion in revenue in 2007.

Jon Hopeman, Petters' attorney, has said Petters denies any wrongdoing. Hopeman didn't immediately return a call Friday about Petters' arrest.

The search warrant unsealed Sept. 26 contained an affidavit that alleged Petters, some employees of Petters Co. Inc. and associates created fictitious documents for current and potential investors.

The affidavit said the scheme tricked more than 20 investors and investment groups that had provided more than $100 million, and perhaps "substantially more." It said a person associated with Petters and PCI had approached authorities with documents and evidence of fraud.

According to the affidavit, Petters lured potential investors by telling them funds would be secured by certain transactions that were actually fictitious.

Investors were given false documents that PCI was purchasing merchandise from vendors such as Nationwide International Resource, based in Los Angeles, and Enchanted Family Buying Co., based in Excelsior, Minn. Additional purchase orders falsely said that PCI sold the same merchandise to stores such as BJ's Wholesale Club and Sam's Club.

"The purchase orders and other documents in support of the transactions are entirely fabricated," the affidavit said. "PCI does not buy merchandise from NIR or Enchanted. Nor does PCI sell merchandise as described ... Petters uses these documents to induce investors to invest money."

The affidavit said that on occasion, investors wanted to wire funds directly to NIR or Enchanted as payment for the false purchase orders provided by Petters. The affidavit said that in those cases, officials at NIR and Enchanted had agreements with Petters to receive the funds, then send them back to Petters, minus a percentage as their compensation for their part of the scheme.

An FBI affidavit said the witness who came forward was part of the scheme, and agreed to cooperate with investigators and plead guilty to a single count of conspiracy.

The witness told investigators that PCI is used by Petters for his other business ventures and "to support his extravagant lifestyle," the affidavit said.

The witness, who is not identified in the document, gave investigators a balance sheet for PCI and its affiliates that listed current liabilities of $3.5 billion, and accounts receivable of about $1.9 billion, according to the warrant. The witness said the accounts receivable figure was based on false documents, and the actual figure was "substantially less."

Through their investigation, authorities corroborated the witness's evidence, finding fictitious purchase orders for Wal-Mart stores or Sam's Club totaling over $10 million. The investigation also found $11.6 billion in wire transfers in and out of an NIR account from January 2003 through March 2006. Specifically, from Jan. 4 2006 through Jan 10, 2006, NIR received $51.3 million in 8 incoming wires, and the day after receiving each wire, NIR transferred the funds, less a 0.05 percent commission, to PCI, the affidavit said.

The warrant, signed by Judge Ann Montgomery, was issued on Sept. 19 and executed on Sept. 24. The case is a joint investigation by the FBI, the IRS Criminal Investigation Division, and the U.S. Postal Inspection Service.

Another Petters associate, Robert White of Excelsior, was charged Tuesday. According to the charging document in U.S. District Court, White created false purchase orders in order to lure investors -- and received millions for his efforts.

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