Businessman Guilty of Nation’s Second-Largest Ponzi Scheme

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Minneapolis—Business mogul Tom Petters has been convicted of fraud, mail fraud, money laundering and conspiracy, to the tune of $3.5 billion.

The Minnesota businessman was found guilty on 20 counts in a multi-billion dollar Ponzi scheme, despite having pled not guilty and maintained his innocence throughout the trial. Petters is the founder and former CEO of Petters Group Worldwide, a company that was established in the early 1990s to buy and sell electronics. In the company’s infancy, its transactions were legitimate. As time went on, however, investors’ money was used not only for large cash bonuses to Petters Group employees and to prop up the company’s less profitable ventures, but also to pay dividends to earlier investors.

According to U.S. Attorney Joe Dixon, who prosecuted the case against Petters, the fact that the money being netted from investors, many of which were hedge funds, was being used to shore up legitimate, yet unsuccessful aspects of the business was a “well-kept secret.”

After deliberating for more than 31 hours, over several days, the jury returned the verdict against Petters of guilt on 10 counts of wire fraud, three counts of mail fraud, one count of conspiracy to commit mail and wire fraud, one count of money laundering conspiracy and five counts of money laundering, all of which he committed through a lesser-known corporate entity called Petters Co. Inc. (PCI).

As part of the Ponzi scheme, according to investigators, Petters submitted false purchase orders, fraudulent checks and other bogus documents in order to convince the lender GE Capital that he was using credit extended by them to purchase and sell goods. Investors who asked to speak with retailers such as Costco, with whom Petters claimed to have special insider relationships, were told that they could not do so because their inquiries might scare off other buyers.

During the credit crisis of late 2007 and early 2008, Petters’s scam began to come to light. Petters and PCI found it harder and harder to attract new investors, whose cash was needed to pay the high-interest returns to earlier investors. Eventually PCI executive Deanna Coleman approached federal officials with evidence of the fraud, and Petters was arrested in the fall of 2008.

Petters faces a maximum sentence of life imprisonment. Judge Richard Kyle said he would determine the sentence in the next few months. This is the second-largest Ponzi scheme discovered to date, behind Bernie Madoff’s infamous billion-dollar scheme.

 

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