Minn. man sentenced to 50 years for $3.7 billion Ponzi scheme
Thomas Petters was convicted of mail fraud, wire fraud, and money laundering for creating the illusion of a company selling to big-box retailers. The 16-year Ponzi scheme netted $3.7 billion.
A federal judge on Thursday sentenced a Minnesota man to 50 years in prison for carrying out a 16-year Ponzi scheme that netted an estimated $3.7 billion.
Petters' testimony 'didn't pass the smell test'
The judge said Petters’ testimony during the trial was not worthy of belief. “It just didn’t pass the smell test,” the judge said.
Petters and a close circle of associates created the illusion of a successful company selling bulk electronic goods to big-box retailers like Costco and Sam’s Club. Federal authorities say it was all a façade. The group printed up false invoices and bank records showing Petters’ company was owed billions of dollars from retailers.
To induce investors to contribute new capital, Petters signed promissory notes and provided his own personal guarantee for the funds received.
Many investors received payments, but not from profits. They were paid from funds received by new investors, prosecutors say.
Federal agents say Petters started his business, Petters Company, Inc., in 1994 and that it was run as a scam from the start.
Petters associate worked undercover
The investigation began in September 2008 when one of Petters’ associates went to the authorities to report the massive Ponzi scam. The associate, Deanna Coleman, agreed to work undercover with federal agents. She wore a recording device during conversations with Petters.
In one recorded conversation, Petters admitted that they had created fake purchase orders. He also suggested that “divine intervention” was the only explanation for how he and his associates had avoided being caught by law enforcement for so long.
Between January 2003 and September 2008, investigators say roughly $12 billion moved from a sham vendor account into a Petters account. During the same period roughly the same amount moved from a similar sham vendor account into a Petters account.
Although these vendors were held up as selling hundreds of millions of dollars in merchandise, bank records showed there was no vendor income from actual commerce. Investigators discovered that money only flowed one way – into Petters’ company.
During a five-year period, agents say $35 billion was wired into a Petters-controlled bank account. Much of the money was used to pay earlier investors. In addition, prosecutors say hundreds of millions of dollars went to fund Petters’ other companies. He also paid family members, bought real estate, and used funds to maintain a lavish lifestyle.