Former Petters associate with criminal past explains role in alleged $3.65B Ponzi scheme

Petters associate explains how alleged scam worked

ST. PAUL, Minn. — A key figure in the case of a Minnesota businessman accused of orchestrating a massive Ponzi scheme acknowledged Monday that he was a disbarred lawyer with a criminal record who had entered the federal witness protection program decades earlier.

Larry Reynolds testified about his past and about the Ponzi scheme, saying he and Tom Petters started doing fraudulent deals together in 1998. Reynolds also testified that he lied to auditors and helped stall nervous investors as late as last year to keep the scam going.

Reynolds already pleaded guilty to money laundering conspiracy for operating one of the companies involved in what authorities say was a $3.65 billion fraud by Petters, operated out of Minnetonka-based Petters Co. Inc.

Reynolds could face up to 20 years in prison and doesn’t have a formal cooperation agreement with prosecutors as several other defendants do. But the 68-year-old acknowledged he hopes for a reduced sentence so he doesn’t die in prison.

“I only agreed with them I’d come here and tell the truth,” he said. “Nothing more.”

Petters’ attorneys have said he is innocent and did not know that Reynolds and others were running a Ponzi scheme, in which investors are paid with other investors’ money instead of real profits. Petters, 52, of Wayzata, is charged with 20 counts and could face life in prison.

Reynolds said that in his first bogus deal with Petters, he gave Petters a false invoice for $1.7 million worth of shoes that Petters wanted to show investors who were going to loan him money.

Petters attorney Paul Engh used Reynolds’ criminal record to attack his credibility but was hampered by prosecution objections.

Reynolds acknowledged he was Larry Reservitz, of the Boston suburb of Brockton, Mass., when he joined an insurance fraud scheme soon after graduating from law school in the 1960s. He fled abroad when he learned he was in trouble, spending time in Europe before going to Israel, where he said he traded U.S. dollars on the black market. He was arrested in Scotland, extradited, pleaded guilty to larceny in 1973, served 13 months in prison, and was disbarred.

After he got out, Reynolds went into the clothing business. He pleaded guilty in 1983 for his role in a large marijuana deal and to bank fraud in 1984. He said he was looking at a long sentence when he agreed to wear a wire and cooperate against other defendants accused of trying to cash a large forged check drawn on an account that belonged to Church of Scientology founder L. Ron Hubbard.

Reynolds testified he entered the witness protection program because another figure in the fraud case put out a contract to have him killed. The defense contends Reynolds was involved in the Mafia, but Reynolds said none of the people he did business with were part of La Cosa Nostra, as far as he knew.

He changed his name, moved to San Diego and went back into the clothing and shoe business.

He said he did some legitimate deals with Petters but also became involved with the Ponzi scheme, in which PCI allegedly used fake purchase orders to get hedge funds and other investors to finance what they thought were PCI’s purchases of televisions and other electronics goods from sources such as the distressed Circuit City chain, which PCI would purport to resell to discount retailers such as Sam’s Club and Costco.

In nearly every instance, prosecutors say, the goods didn’t exist and the money went to pay off other investors or help Petters live the life of a high-flying corporate tycoon. Reynolds testified they often met up in Las Vegas at the Bellagio casino, where Petters liked to play the high-stakes slot machines.

Reynolds said that in the late 1990s he started letting Petters launder money through the bank accounts of his company, Nationwide International Resources, which operated out of a tiny office in Los Angeles. Reynolds estimated that PCI routed around $12 billion through his accounts through 2008 and that he collected about $4 million to $5 million in commissions off it.