Petters’ defense spotlights recordings in which colleagues wonder about his knowledge of fraud

Petters team tries to turn recordings to advantage

ST. PAUL, Minn. — An attorney for the Minnesota businessman accused of orchestrating a massive Ponzi scheme attacked the credibility of the prosecution’s star witness Wednesday, playing recordings in which she and other key figures in the case speculated about how much he knew about the scam.

Deanna Coleman, vice president of operations at Petters Co. Inc., ultimately blew the whistle on what authorities say was a $3.65 billion fraud by Tom Petters. She wore a wire to work after telling her story to federal investigators in September 2008.

In one conversation, Bob White, the chief financial officer of Petters Co. Inc. said to Coleman, “I can’t tell for sure if Tom knows.” Coleman responded: “Tom knows. He just doesn’t want (to) think about it.” She went on to say, “I think Tom believes that these are real deals half the time.”

White answered, “I don’t know for sure what Tom knows, you know, and he lives in his fantasy world once in a while.”

Coleman, testifying for a third day in Petters’ fraud trial, said they were joking in that conversation. And prosecutor Joe Dixon played a recording of a conversation between Coleman and Petters in which he made statements suggesting he did know what was going on, such as “I’m not talking like they’re real POs (purchase orders).”

The 43-year-old Plymouth woman also said in her testimony this week that everything she did was at Petters’ direction — including forging purchase orders and other documents so it would look like investors’ money was backed up by electronics that PCI planned to sell to major discount retailers.

Petters’ attorneys have said he is innocent and did not know that Coleman, White and others were running a Ponzi scheme, in which investors are paid with other investors’ money instead of real profits. They have claimed he was so distracted by the murder of his son in 2004, his acquisitions of companies like Polaroid and his charitable activities that he wasn’t paying much attention to PCI.

Both Coleman and White have pleaded guilty and agreed to cooperate with authorities in hopes of getting lighter sentences. Petters, 52, of Wayzata, is charged with 20 counts and could face life in prison. Coleman faces up to five years for conspiracy to commit fraud; White up to 20 years for mail fraud and illegal monetary transactions.

Defense attorney Paul Engh got Coleman to admit during cross-examination Tuesday and Wednesday that she had lied to the hedge funds that invested money with PCI over and over, even after going to authorities. She admitted to misleading auditors.

Coleman also admitted she failed to pay taxes on all her income. She admitted concealing her net worth from a divorce court — by writing company checks for some of her bonus money to her boyfriend and brother instead — so that her ex-husband wouldn’t get it. She said she even stole from Petters, for whom she had worked since 1993 and with whom she had an intimate relationship in 2005 and 2006.

And even after going to authorities, she admitted, she didn’t turn over to the court-appointed receiver her pair of courtside season tickets for the Minnesota Timberwolves, worth $800 per seat per game.

In another recording played for the jury, Coleman and Larry Reynolds discussed what Petters and other figures in the case knew. Reynolds operated a Los Angeles company that purported to be the source of the televisions and other gear that PCI would claim to resell to Sam’s Club, Costco and BJ’s Wholesale Club. The jury heard them discussing whether Chicago hedge fund manager Greg Bell — who later pleaded guilty to mail fraud in the Petters case — fully knew that the transactions were all a sham.

According to the recording:

Reynolds: He may not wanna know, Deanna.

Coleman: Yeah, I know.

Reynolds: You know, it, it, could just be complete denial, which I think Tom is part of it.

Coleman: Oh I know Tom is, complete denial.

Reynolds: All right, so we gotta snap him out if it and work, uh …

Coleman: He talks to me all the time like these are real purchase orders.

Reynolds: Excuse me?

Coleman: I said Tom talks to me like these are real purchase orders, Larry.

Reynolds: Yeah, yeah, I understand.

Under questioning from Engh, Coleman said she hadn’t known that Reynolds had multiple convictions for fraud and had been involved with an insurance scam in Boston in the 1960s.

Prosecutors have acknowledged that his real name is Larry Reservitz. He took the name Reynolds after he entered the federal witness protection program. He was dropped from the program after pleading guilty to money laundering conspiracy in the Petters case. He faces up to 20 years in prison. While he didn’t formally agree to cooperate, prosecutors have said they expect he will testify.