* Star witness in tears on second day of testimony
* Witness says had “intimate” relationship with Petters
* Coleman says she made $19 mln from Petters in 2001-2008
ST PAUL, Minn., Nov 3 (Reuters) - The star witness for the prosecution in the fraud trial of accused Ponzi schemer Tom Petters was in tears on Tuesday as she described her decision to confess to the authorities last year.
In her second day on the stand, Deanna Coleman, a long-time associate of Petters and whistle-blower of the estimated $3.65 billion alleged fraud, said she couldn’t quit in the summer of 2008 when she was worried the scheme would unravel.
“I was in it too deep, I couldn’t,” she said in response to questioning from prosecutors.
Coleman said it was then that she went to a lawyer, and eventually decided to go to the FBI. She has pleaded guilty to conspiracy and has been cooperating with investigators, even wearing a wire and recording conversations with her former boss.
It was Coleman’s second day on the stand in the Petters trial in front of a federal jury.
Prosecutors have accused Petters of fraud, money laundering and other crimes for falsely promising investors big returns by financing his company's purchase and sale of electronics goods to retailers such as Costco Wholesale Corp COST.O and Wal-Mart Stores Inc's WMT.N Sam's Club.
They have said that Petters would use new funds to repay earlier investors and company expenses, and to fund a lavish lifestyle that included expensive cars and homes. He also deceived investors by showing them faked records, prosecutors said.
The case has since transfixed the Minneapolis area.
The Minnesota businessman’s now-bankrupt empire, Petters Group Worldwide, once included companies such as Polaroid and Sun Country Airlines. Petters was jailed in October 2008, and his trial is expected to last four to six weeks.
Defense lawyers for Petters, 52, have been trying to shift blame for the scheme to Coleman and the six other co-conspirators who have already pleaded guilty in the case. They contend that Petters may not have known what his associates were up to.
Coleman, 43, who rose in the Petters operation from a secretarial position to a vice president making more than $200,000 a year and up to $7 million in annual bonuses, is the government’s star witness in the trial.
Prosecutors played tapes she had recorded of conversations with Petters in September 2008, in the days before the FBI raided his operation, where he said he was “at a breaking point” and that they had to come up with “a plausible plan.”
“We’re going to come up with some (expletive) story -- I’m trying as hard as I can to figure out how to get out of this,” Petters said on the tapes played by prosecutors.
Coleman testified that she got loans from Petters to buy vacation condos and earned $19 million from 2001 to 2008 while she was working on the scheme.
She also said on Tuesday that she and Petters had an “intimate” relationship from 2005 through 2006 and she wept when prosecutors asked her to read a 2004 e-mail from Petters that read: “Did I ever tell you I loved you?”
“We were very close,” she told the court.
Petters’ defense lawyer began cross examination of Coleman in the afternoon. She admitted she told lies to hedge fund investors about what she did at Petters, and asked what she had done at the company, she said:
“I did what Tom asked me to do.”
The defense also questioned Coleman on her plea agreement, saying she could get as much as 365 months in prison for the crimes she has admitted, and under her plea agreement with prosecutors will spend only zero to six months in prison. Coleman said she is going to ask for probation.
The accused Petters Ponzi scheme was the largest ever discovered by U.S. authorities, until Bernard Madoff confessed to a larger scheme late last year.
The case is USA v. Petters et al, U.S. District Court, District of Minnesota, No. 08-00364.
Reporting by Todd Melby; Writing by Emily Chasan; Editing by Phil Berlowitz
Our Standards: The Thomson Reuters Trust Principles.