Esme's Blog

Robert White testified his office was in a remote part of the fourth floor of Petters headquarters. In one of the tapes, Petters can be heard comparing White to Quasimodo and the remote office to the Belfry.

It was there that he would cut and paste his documents that fooled so many for so long. His office was always a mess, he said, with scraps of cut-up documents everywhere. White said he always had papers at the ready to cover up the documents in case someone wandered in. Among the documents he doctored: Petters' 2003 income taxes. They had been filed, but Petters needed to present the taxes to a lender as proof of his income. White just changed the income line from roughly $2 million to $25 million.

In the summer of 2008, White said, when Petters needed letters from Sony and BJ's to prove there were deals in the works, he asked Petters if he had any letterhead from those companies so he could use that for his cut-and-paste job. Petters emailed the CEO of Polaroid, Mary Jeffries, asking her if she had any documents from those companies. The document she e-mailed back didn't have a letterhead on it, so White went to the Internet and found the logos.

In the dramatic tapes Deanna Coleman made between Sept. 8 and Sept. 24, White can be heard arguing with Petters about possible ways out of the scheme. "Our necks are on the line," he wrote to Petters in an e-mail. White was convinced that if Petters was able to purchase a legitimate business, perhaps Kodak, Petters could then raise enough funds to pay off all the investors who were clamoring for their money. By then the size of that debt to investors was in excess of $3 billion.

White had spun off Zink, a division of Polaroid. That division was developing a technology involving a type of paper that could print pictures without using ink; the ink was already in the paper. White was convinced Zink would someday be worth millions, if not billions. "Imagine," he told Deanna Coleman, "a real company making a real profit."

On the tapes White is clearly overwhelmed by the stress of continuing to maintain the fictitious work of PCI. Even Petters on the tapes can be heard saying, "We are all at a breaking point." But Petters also has bouts of wild optimism on the tapes. He talks repeatedly of trying to buy Value Vision and Circuit City. This will be "a way out," Petters said. But White has the demeanor of someone who knows there is no real way out.

Coleman, on the other hand, could be nominated for an Oscar. Another reporter and I marveled at her performance on the tapes. Never rushed, never sounding suspect, all the time wearing the FBI wire.

Bob White testified how Tom Petters would jokingly pretend to the FBI knocking on White's office door. White said his office was always a mess because he spent hours "cutting and pasting" an estimated 10,000 phony documents for Petters over the years. But on Sept. 24, 2008 the knock was from a real FBI agent. White said he agreed immediately to cooperate and told the agent everything that had been going on.

"I was relieved," White said. "I was glad it was over."

White said over the next few days Petters told him how angry he was with Deanna Coleman. White also said Petters urged him to flee the country.

Unlike Coleman who got a deal for her cooperation and faces a maximum of five years in prison, White did not get a deal. He pleaded guilty to money laundering and wire fraud and faces 30 years in prison. He said because he is 68 he knows that amounts to a life sentence. A judge could decide to give him a lesser sentence in return for his cooperation.

Prosecution has just presented another one of Deanna Coleman's secret recordings in which Tom Petters gives a rambling 30 minute diatribe that is largely incoherent about possible plans he has to end the fraud.

The manic discourse in which Petters is speaking very rapidly was difficult to comprehend. Seemed like it might make a better defense exhibit.

Tom Petters' former best friend, restaurateur Dean Vlahos, choked up as he testified about how Petters had betrayed his trust. Vlahos testified he originally invested $16 million with Petters, and that at a 36 percent interest rate return he made $42 million over eight years on that investment.

But in the end Vlahos said he lost the $16 million principal investment plus another $10 million he borrowed to enter into a deal to purchase Circuit City merchandise.

Bob White who has pleaded guilty on the stand says he became part of the fraud in 1999. He said he got a phone call from Petters who said, "I'm in big trouble."

When he arrived at Petters' office he found Petters crying. Petters told him, "I'm ruined if you can't help me." White said together, he and Petters came up with phony bank statements to make it look like Petters had "spent the money the way he said it had been spent." White said Petters told him the problem would be corrected in two months.

But White said Petters kept coming to him for more phony documents. In nine years, White said he created more than 10,000 bogus documents designed to keep the fraud afloat and con investors into investing with Petters.

White said he, Petters and Coleman were terrified when the accounting firm Arthur Anderson audited the company in 2003. White said he fabricated more documents for the audit. The audit found nothing wrong and White testified he remembered thinking, "Halleluiah!"

Yesterday on the stand, whistleblower Deanna Coleman described gambling away more than $600,000 in two days in January 2008 at Las Vegas casinos. Petters put Coleman's boyfriend on the company payroll from $100,000 dollars a year even though he did nothing for the company.

On the stand at the end of the day, restaurateur Dean Vlahos (pictured) described how he began investing with Petters in the early 2000s. They were on a flight back from Petters' home in Keystone, Colo. and Petters talked to him about investing. They reached a deal on the plane that would provide Vlahos with a 36 percent return on his investment. Vlahos said he originally asked Petters for 50 percent interest. Petters wanted to give him 10 percent. They settled on 36 percent.

Vlahos testified for years he received monthly checks from Petters with the payments from his investment. "There was never a problem," Vlahos said. He testified he kept investing more until he had invested $16 million with Petters by the fall of 2008.

Bankers testified they loaned Vlahos $10 million in January 2008 so he could invest in a separate deal with Petters. Petters had told the bankers the loan money would go to purchase Circuit City electronics. One of the loans was secured with a $3 million third mortgage on Vlahos' $9 million Deephaven home. The bankers testified the loans have never been repaid and are "seriously delinquent." Vlahos, who said Petters was "his best friend," took a circuitous route around the prosecution table in what appeared to be an attempt to avoid any eye contact with Petters.

Insurance agent Tim Gonsior testified that Tom Petters was adamant that the warehouses that his company told investors housed hundreds of millions of dollars of electronics must not be inspected. Deanna Coleman has testified the warehouses were phony and no inventory ever existed.  

Petters' close friend restaurateur Dean Vlahos is expected to testify soon.

Tom Petters' personal assistant David Margolis testified that Petters would have him frequently lie to investors and employees. Margolis said Petters would have him say that Petters was on his way to meet with retailers to collect payments from them. Margolis said, in fact, Petters did not go to any such meetings.

The defense has finally scored some points with the Deanna Coleman secret recordings.

Bob White a co-defendant is talking to Coleman. They are talking about who knows what in the conspiracy.

White says, "I can't say for sure if Tom knows."

Coleman responds. "Tom knows. He doesn't want to think about it."

Coleman then says, " I think Tom believes these are real deals half the time."

White then says, " I don't know for sure what Tom knows you know, and he lives in this fantasy world once in a while."

Coleman says, "Once in a while and all the time."

In another recorded conversation between Coleman and Larry Reynolds, another co-defendant says, "Tom is in complete denial. He talks to me all the time like these are real purchase orders."

Deanna Coleman sobbed on the witness stand as she talked of turning herself into the FBI last September. She broke down several times during her testimony.

Petters can be heard crying on one of the secret recordings she made. He is crying as he describes his fear that one of the investors he is unable to pay back will take a hit out on him and kill him.

Petters says, "The reason I want to get him paid off is I think he will kill me."

I have a call into the offices of that investor for a comment.

Deanna Coleman broke down briefly on the witness stand as she was asked to read an e-mail from Tom Petters that said "Did I ever tell you that I loved you?"

She was unable to read the e-mail, but quickly regained her composure.

She testified that Petters' employees received lavish Christmas bonuses. Coleman's own bonuses ranged from $1 million in 2002 to $3.5 million in 2007. Coleman admitted she had not paid income taxes on about $2 million of the last $3.5 million bonus she received.