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Oct 14, 2008 5:52 pm US/Central
How Did The Petters Scam Work For 14 Years?
MINNEAPOLIS (WCCO) ―
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Tom Petters, 51, the founder of Petters Group Worldwide is charged with fraud in an alleged multimillion-dollar investment scheme that prosecutors say spanned 14 years. (File)
Sherburne County Jail
The owner and former CEO of Petters Group Worldwide remained behind bars Tuesday afternoon, though one of his co-defendants is now out of jail.
Larry Reynolds was released in California after posting a $2.5 million bail. Last week a judge denied bail for Tom Petters saying he was a flight risk.
Reynolds and his wife agreed to surrender their passports.
Petters and Reynolds are accused of being the masterminds of a scheme that conned investors out of $3 billion over a 14-year period. Petters told investors he could make them rich if they invested with him.
The government said Petters conned investors by showing them phony balance sheets and phony receipts. Petters told investors he was buying millions of dollars of consumer electronics from two companies -- NIR and Enchanted -- and then reselling them at a profit to Sam's Club, Wal-Mart and other retailers.
But there were never any electronics, and the government says NIR and Enchanted were sham companies. The ostensible address of Enchanted, in fact, belongs to a car wash located off Highway 7 in Excelsior.
Deanna Coleman, the longtime Petters aide and whistleblower in the case, and Robert White, a Petters consultant, have pleaded guilty to making up the phony receipts.
Petters investors did get some money back; essentially new investors' money was used to pay old investors. Other investors were satisfied with balance sheets that showed on paper they were making big bucks.
Apparently, only once during the entire 14 years of the scheme did an investor ask to see the warehouse of electronic goods. The investor was told it was too remote and never inquired further.
Still, there is evidence that some investors were beginning to get concerned. In mid-August a Connecticut hedge fund sued Tom Petters for $273 million after Petters' company defaulted on an Aug. 1 loan payment to them for $10 million.
That hedge fund is now lined up in bankruptcy court with other Petters creditors hoping to get their money back.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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