While the U.S. financial crisis captured the world’s attention, another kind of financial story made headlines in Minnesota last week.
On Wednesday, federal agents searched the office and home of Thomas J. Petters, a prominent Minneapolis-area businessman and philanthropist.
According to a court document, they were looking for evidence in what authorities say may be a more than $2 billion scheme to defraud investors.
Investigators also searched the homes and offices of some of Petters’ associates, as well as two cars belonging to a former officer in one of Petters’ companies.
No arrests have been made and Petters has maintained his innocence.
On Monday, Petters resigned as CEO and chairman of Petters Group Worldwide, a company based in a Minneapolis suburb that owns a wide variety of companies including Polaroid and Sun Country Airlines.
“Events of the last few days have made it impossible for me to continue as the leader of these companies,” he said in a prepared statement.
Petters is well known in the Twin Cities both as a business success and as a someone who has donated millions of dollars to institutions in Minnesota and beyond.
However, federal authorities are suggesting that some of his wealth has been obtained through an elaborate scheme that made his companies seem more successful than they were.
As outlined in an affidavit requesting a search warrant, authorities have obtained evidence against Petters with the cooperation of an unidentified witness who secretly recorded Petters and his associates.
The witness, an employee of Petters Group Worldwide, has agreed to plead guilty to conspiracy and could receive up to five years in prison.
The affidavit outlines what authorities say was a scheme to encourage investments in Petters Co. Inc., the venture capital arm of Petters Group Worldwide.
Allegedly, Petters and his associates claimed that Petters Co. Inc. owned goods that it purchased at wholesale prices and then resold to retailers.
In point of fact, the affidavit states, the company didn’t own the goods and the records of their sale to retailers were falsified.
One of the people under investigation allegedly described the transactions as a “Ponzi scheme.”
In the affidavit, authorities say they recorded Petters “repeatedly” admitting that his company was providing false documents. He also allegedly talked about fleeing the country if the scheme were discovered.
The affidavit links Petters to Frank Vennes Jr., a former Bismarck, N.D., pawnbroker who pleaded guilty in 1987 to money laundering and drug charges and subsequently served a prison term.
After his release, Vennes sued several unnamed FBI agents, alleging that they had coerced and entrapped him into committing crimes.
Vennes claimed that the agents first said they were investors and then claimed they were members of the underworld. They threatened to kill Vennes and his family unless he committed crimes, Vennes alleged.
Vennes’ suit was dismissed. According to newspaper reports, he then became involved in investments in Minnesota and in Florida.
According to the affidavit, Vennes served as a broker for Petters, obtaining investors in Petters Co. Inc.
Vennes also served as a trustee at a local Twin Cities college, and he is on the board of Minnesota Teen Challenge, an effort to help young people with addiction problems.
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