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UPDATE 2-Tom Petters found guilty of Ponzi scheme fraud

* Petters convicted on all 20 counts

* Jury deliberated over five days

* Petters could face life in prison (New throughout)

ST. PAUL, Minn., Dec 2 (Reuters) - A federal jury on Wednesday found Minnesota businessman Tom Petters guilty of orchestrating a $3.65 billion Ponzi scheme.

The 52-year-old founder of Petters Group Worldwide Inc was convicted on all 20 counts he faced, including wire fraud, mail fraud and money laundering.

Prosecutors said Petters could face 30 years to life in prison when he is sentenced within the next few months.

The government had accused Petters of using one of his companies, Petters Co, to bilk investors who thought he was using their money to buy consumer electronics for resale to retailers such as Costco Wholesale Corp COST.O and BJ's Wholesale Club Inc BJ.N.

“Mr. Petters’ company was a fraud, and Mr. Petters was his company,” prosecutor John Marti told reporters after the verdict.

Wearing a charcoal gray suit, red tie and white shirt, Petters sat stone-faced, staring at U.S. District Judge Richard Kyle in St. Paul federal court after the verdict by a jury of seven women and five men was read.

“We disagree with the outcome,” Jon Hopeman, a lawyer for Petters, said in a statement. “As much as anything, the trial showed how much good Mr. Petters has done in the world. This too is worthy of reflection.”

Petters’ operations once included businesses such as Polaroid Corp and Sun Country Airlines Inc, but went bankrupt last year after Petters was charged.

The defense maintained that Petters did not know about the fraud until just before his offices were raided, and that the scheme was engineered by others.

Among these were two former top executives, whistleblower Deanna Coleman and Bob White, who pleaded guilty in the case.

Joe Dixon, one of the prosecutors, said “we would not have been able to act as quickly as we did” had Coleman not come forward. “She was a critical component,” he said.


The jury forewoman, Jolyne Cross, told reporters after the verdict that the jury gave testimony of some cooperating witnesses less weight.

Yet Cross, who said she works for a printing company, said jurors also concluded that Petters fell into a “slippery slope” once the fraud began.

“I think he really honestly cared about the people that worked for him,” Cross told reporters. “I don’t think that it was ever his intention in the beginning to do this, but he got so caught up into it. And he’s a good salesman.”

The case gained greater notoriety after Bernard Madoff was arrested last December for engineering an estimated $65 billion Ponzi scheme. Madoff is serving a 150-year prison sentence.

Petters’ trial began more than a month ago. The jury deliberated for more than 30 hours over five days.

A Ponzi scheme occurs when money from new investors is used to repay earlier investors.

Central to the government case had been recorded conversations of Petters in September 2008, just before federal agents raided his company.

Prosecutors said Petters’ comments were an admission of guilt, while defense counsel said they reflected only a belated realization of fraud being conducted by others.

The defense also tried to show that Petters was too far removed from the parts of his business where fraud was taking place, and was particularly distracted after the 2004 fatal stabbing of his son John in Italy.

Dixon said it was unlikely there would be a “significant” recovery for investors harmed by Petters’ fraud.

The case is USA v. Petters et al, U.S. District Court, District of Minnesota, No. 08-00364. (Reporting by Art Hughes; Additional reporting by Jonathan Stempel in New York; Writing by Jonathan Stempel; Editing by Tim Dobbyn) (( +1 646 223 6317; Reuters Messaging: