Nov 9, 2009 2:47 pm US/Central
Petters Associate Explains How Alleged Scam Worked
ST. PAUL (WCCO) ―
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Larry Reynolds took the stand Monday to discuss how the scheme worked. (File)
CBS
One of the key figures in the Tom Petters case says he started doing fraudulent deals with the Minnesota businessman in 1998.
Larry Reynolds has already pleaded guilty to operating one of the companies involved in the alleged $3.65 billion Ponzi scheme.
Reynolds testified Monday that he gave Petters a false invoice for $1.7 million worth of shoes that Petters showed investors who were going to loan money.
Reynolds, 68, also testified he lied to auditors and insurance inspectors to help keep the scam going.
Reynolds operated out of a small office in Los Angeles but usually met Petters at the Bellagio Hotel and Casino in Las Vegas, where he says Petters liked to play the high stakes slot machines.
Reynolds, a convicted felon who ended up in the Witness Protection Program, also told the jury about his background, how he ended up spending time in prison for his role in a check scam in Boston.
Reynolds testified he was not involved with the Mafia but did admit to testifying against two people in the check scam, one of which had a contract out to kill Reynolds.
After serving time in prison, he entered the witness protection program. His last name was changed from Reservitz to Reynolds and he moved out to Los Angeles with his family.
Reynolds said he opened up a women's clothing and shoe store, which is how he met Tom Petters. Both were interested in a similar deal with L.A. Gear and their relationship developed from there.
Reynolds told the jury Petters asked him to verify inventory for investors inventory that didn't exist. Then in 2004, Reynolds said Petters came to him and asked him to open a bank account, saying he needed to divert the money and conceal the nature of the funds.
That was the beginning of an ongoing money wire transfer. Reynolds says millions of dollars was coming in and out of his bank account on a daily basis. Reynolds told the jury he thought the amount totaled $12 billion and he said he received between $4 and $5 million as commission.
The defense maintains Petters did not know what was going on with his company, but Reynolds was clear in the testimony that Petters came to him and asked him for fake invoices, asked him to lie to investors, and asked him to open a bank account to wire money between various accounts.
Reynolds is hoping for a reduced sentence in return for his testimony.
(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
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