October 27, 2009 / 11:35 PM / 10 years ago

Jury selection to begin Petters Ponzi scheme trial

NEW YORK/MINNEAPOLIS (Reuters) - Jury selection is set to begin on Wednesday in the trial of accused Ponzi schemer Tom Petters, whose alleged $3.65 billion fraud was the largest ever detected until financier Bernard Madoff confessed to his scheme last year, U.S. investigators say.

Petters, a Minnesota businessman who ran a corporate empire including Fingerhut, Polaroid Corp and Sun Country Airlines, was put behind bars last October after allegations he defrauded investors by selling bogus notes related to consumer electronics.

Petters has pleaded not guilty and spent the past year behind bars awaiting trial.

Petters, 52, faces 20 counts, including charges of wire and mail fraud, money laundering and obstruction of justice.

On Wednesday in federal court in Minneapolis, prosecutors and lawyers representing Petters will choose a 16-member jury to hear the trial, which is expected to last four to six weeks. U.S. District Judge Richard Kyle could hear opening arguments in the case as soon as Thursday.

The trial will feature testimony from several co-conspirators who have been cooperating with the prosecution.

Deanna Coleman, a former vice president at Petters’ company, is expected to be one of the government’s key witnesses.

Coleman walked into the U.S. Attorney’s office in September 2008 and confessed that she helped Petters execute a multibillion-dollar Ponzi scheme for more than a decade.

Coleman and six others have pleaded guilty in the case and are cooperating with prosecutors in hopes of receiving a lighter sentence.

The government claims that under the scheme, Petters and co-conspirators convinced investors to loan them money to purchase electronic goods, which would then be resold to big box stores like Costco (COST.O) and Walmart’s Sam’s Club (WMT.N).

In reality, investors were being paid with funds from new investors and were shown false records, the government says, and Petters used funds from the scheme to fund company expenses and a “lavish lifestyle” including new cars and luxury homes.

The government claims in court papers that the companies Petters acquired gave him “the appearance of a corporate tycoon,” which helped him recruit new investors.

Lawyers for Petters will argue that while some of his associates may have known there was a fraud, Petters was not necessarily aware of what his associates were doing. His lawyers have unsuccessfully tried to transfer the case, by arguing that the jury pool has been tainted due to extraordinary negative local publicity around the case.

The case is USA v. Petters et al, U.S. District Court, District of Minnesota, No. 08-00364.

Editing by Gary Hill

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