Another Huge Ponzi Scheme, Another Conviction

In the aftermath of Bernard Madoff’s $50 or $60 billion Ponzi scheme, mere thefts of one or a few billion dollars lose the ability to shock. Nevertheless, there seems to be no end to gigantic Ponzi scheme thefts. The most recent news comes from Minneapolis, Minnesota, where federal prosecutors yesterday won conviction on all 20 counts of an indictment charging Tom Petters, a Minnesota business man, with operating a $3.65 billion Ponzi scheme for at least a decade. After deliberating for five days, the jury returned guilty verdicts for wire fraud, mail fraud, money laundering, and conspiracy.

The indictment charged Petters with promising investors significant returns for lending his company, Petters Co., funds to buy surplus merchandise to resell to large retailers such as Costco and Wal-mart. In reality, there were no such transactions, Petters simply pocketed the invested funds and used them to finance his lavish lifestyle. Prosecutors showed that the investments of Petters’s victims went to his purchase of expensive homes throughout the country, luxury automobiles, and expensive boats. Moreover, Petters used the stolen funds as seed money to purchase several legitimate businesses such as Polaroid Corp.

Several co-conspirators pleaded guilty to lesser crimes and cooperated in the investigation and prosecution of Petters. The scheme began to collapse in September 2008 when one of the co-conspirators approached the United States Attorney’s Office in Minneapolis and disclosed the existence of the fraud. This co-conspirator began cooperating in the investigation, including the wearing of a recording device to meetings with Petters. The tapes gained through this cooperator’s efforts to record conversations were the key evidence in the prosecution of Petters. In one tape, Petters was heard saying that the business was “one big . . . fraud.”

Sentencing will take place in approximately two months. Petters was in jail since his 2008 arrest and will remain in custody awaiting further proceedings. The receiver in the case has stated that thus far less than $200 million has been recovered. Appeals are standard, although rarely successful, in most criminal convictions after trial. Petters’s attorney said that his client will appeal the conviction.

For more about the Petters conviction please see The Wall Street Journal, December 3, 2009.

About Richard Serafini

Welcome to my blog. I am an attorney and practice in the area of corporate trial work. Areas of particular emphasis are white collar defense, securities litigation, health care litigation, internal investigations, RICO, and financial litigation. I will be posting interesting developments in my areas of interest. I hope that you find this blog helpful and informative.