Petters, Thomas - $3.7 billion Ponzi Scheme

Thomas Petters

THE CON: As far as investors knew, Petters Company, Inc. bought and resold consumer electronics in bulk. In fact, the company did little more than funnel money into Thomas Petters’ account.

THE DAMAGE: $3.7 billion

THE OUTCOME: Petters was found guilty of multiple counts of mail fraud, wire fraud and money laundering and sentenced to 50 years in prison.

Minnesota Fraudster

For years, Thomas Petters was known as one of Minnesota’s most successful businessmen. Overnight, he became the man who ran the state’s biggest con. For more than 15 years, Petters and his associates lured hundreds of people into a $3.7 billion Ponzi scheme.

Petters Company, Inc. was created in 1994 to serve as Thomas Petters’ gigantic piggy bank. As far as investors knew, their money was being used to buy consumer electronics, which were resold for profit to wholesale retailers like Sam’s Club and Costco.

In fact, Petters pocketed up to $82 million of investors’ funds for himself and used millions more to expand his business empire. In 2005, he bought Polaroid Corp. at a bankruptcy auction for a cool $426 million (of investors’ funds).

The Ponzi scheme worked for years, with early investors getting what a prosecutor later characterized as “lulling” payments whenever necessary. By the time the con fell apart, Petters had ensnared more than 400 victims from his home state of Minnesota and from as far off as Europe, Canada and the Caribbean. Their investments ranged from $9,000 to $165 million – none of which was used to buy electronics.

It took a member of his inner circle to flip the switch and reveal the company for what it was. In September 2008, Deanna Coleman, one of Petters’ business associates, went to the authorities. Coleman agreed to wear a recording device and captured Petters talking about fake purchase orders. In one conversation, he mused that only possible explanation for why they hadn’t been caught was “divine intervention.”

With the opportunity to confess before him, Petters blamed the fraud on Coleman and another associate, Robert White. He claimed that everything was done without his knowledge – a story that the judge said roundly failed the “smell test.”

Both Coleman and White said they took direction from Petters and, along with four other associates, pleaded guilty. As for Petters, he was found guilty of multiple counts of mail fraud, wire fraud and money laundering. The judge sentenced him to 50 years – the longest term in a financial fraud case in Minnesota history. The judge’s reason was sound: "I'm not satisfied that if he were released early, he wouldn't re-offend."

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