Thomas Joseph Petters is a former American businessman and chairman and CEO of
Petters Group Worldwide Petters Group Worldwide was an American diversified company based in Minnetonka, Minnesota that was turned into a $3.65 billion Ponzi scheme by its founder and CEO, Tom Petters. It had 3,200 employees and investments or full ownership in 60 compani ...
, a company which stole over $2 billion in a
Ponzi scheme
A Ponzi scheme (, ) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are comin ...
. He was convicted of massive business fraud in 2009 and is now imprisoned at the
United States Penitentiary, Leavenworth
The United States Penitentiary, Leavenworth (USP Leavenworth) is a medium security U.S. penitentiary with an adjacent minimum security satellite camp in northeast Kansas. It is operated by the Federal Bureau of Prisons, a division of the Unite ...
.
[Nicole Muehlhausen]
BIO: Tom Petters
KSTP.com, September 24, 2008, Accessed October 8, 2008. Amid mounting criminal investigations, Petters resigned as his company's CEO on September 29, 2008.
, WCCO.com, September 29, 2008, Accessed October 8, 2008. He was convicted of numerous federal crimes for operating Petters Group Worldwide as a $3.65 billion
Ponzi scheme
A Ponzi scheme (, ) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are comin ...
and received a 50-year federal sentence.
Early years
Petters was raised with six siblings in
St. Cloud, Minnesota
St. Cloud is a city in the U.S. state of Minnesota and the largest population center in the state's central region. The population was 68,881 at the 2020 census, making it Minnesota's 12th-largest city. St. Cloud is the county seat of Stear ...
. He worked at the tailor, fur and fabric shop founded by his great-grandfather and operated by his family for over 100 years. In 1973, while still in high school, he started Ear Electronics, a mail-order stereo company aimed at college students. Petters completed only one semester of college before dropping out to pursue a career. In the early 1980s, Petters worked in
Colorado
Colorado (, other variants) is a state in the Mountain West subregion of the Western United States. It encompasses most of the Southern Rocky Mountains, as well as the northeastern portion of the Colorado Plateau and the western edge of t ...
as a regional manager at an electronics store chain; when that business went bankrupt, he purchased five of its locations in Colorado and
Kansas
Kansas () is a state in the Midwestern United States. Its capital is Topeka, and its largest city is Wichita. Kansas is a landlocked state bordered by Nebraska to the north; Missouri to the east; Oklahoma to the south; and Colorado to the ...
.
[Kari Petrie]
The Petters File
''St. Cloud Times'', October 3, 2008, Accessed October 8, 2008.
Petters Group Worldwide
In 1988, Petters moved back to Minnesota and founded Amicus Trading, a
wholesale brokerage; the name was later changed to The Petters Company, and it marketed consumer merchandise. In 1995 he started Petters Warehouse Direct to sell closeout, overstock and bankrupt company merchandise from a store in
Minnetonka, Minnesota
Minnetonka ( ) is a city in Hennepin County, Minnesota, United States. A western suburb of the Twin Cities, Minnetonka is located about west of downtown Minneapolis. As of the 2020 census, the city's population was 53,781.
Minnetonka is th ...
, and later in the
Twin Cities
Twin cities are a special case of two neighboring cities or urban centres that grow into a single conurbation – or narrowly separated urban areas – over time. There are no formal criteria, but twin cities are generally comparable in sta ...
and greater Minnesota. In 1998, he moved online to sell discounted merchandise through redtag.com, operated by RedTag Inc.; by 2000 he sold his Petters Warehouse Direct stores to focus on his online business, based in
Eden Prairie, Minnesota
Eden Prairie is a city southwest of downtown Minneapolis in Hennepin County and the 16th-largest city in the State of Minnesota, United States. As of the 2020 census, it has a population of 64,198. The city is adjacent to the north bank of th ...
. He teamed up with direct-mail merchandise company
Fingerhut
Fingerhut is an American catalog/online retailer.
Fingerhut was founded in 1948 by William Fingerhut and his brother Manny, selling automobile seat covers. In 1952, the business repositioned itself as a mail order catalog company and diversifie ...
Companies Inc. in 2001 to start a new online store, Redtagbiz.com, which reported sales of $1 billion per year at one point.
Between 1998 and 2008, Petters created a series of investment funds through which he raised in excess of $4 billion through a variety of
Ponzi scheme
A Ponzi scheme (, ) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are comin ...
s. These fund family names included Arrowhead, Lancelot, Palm Beach and Stewardship. Through these funds, Petters perpetrated the third-largest
hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
fraud case in U.S. history. Petters used these funds to finance his big box and other acquisitions. He then fabricated retail orders from those acquisitions and used them as collateral to borrow more money through the funds.
When Fingerhut's owner,
Federated Department Stores
Macy's, Inc. (originally Federated Department Stores, Inc.) is an American conglomerate holding company. Upon its establishment, Federated held ownership of the regional department store chains Abraham & Straus, Lazarus, Filene's, and Shillito ...
, decided to sell or close the company in 2002, Petters teamed with former Fingerhut chairman Ted Deikel to buy the Fingerhut name, customer list, and buildings in St. Cloud, Minnetonka, and
Plymouth, Minnesota
Plymouth is a city in Hennepin County in the U.S. state of Minnesota. A suburb in the Minneapolis–Saint Paul metropolitan area, the city is about west of downtown Minneapolis.The population was 81,026 at the 2020 census, making it Minnesota's ...
and
Tennessee
Tennessee ( , ), officially the State of Tennessee, is a landlocked state in the Southeastern region of the United States. Tennessee is the 36th-largest by area and the 15th-most populous of the 50 states. It is bordered by Kentucky to th ...
. The acquisition closed in June 2002, and all of Petters's operations moved into Fingerhut's former headquarters in Minnetonka. Deikel assumed direction of Fingerhut Direct Marketing Inc., which created catalogs, and Petters operated Fingerhut Fulfillment, based at a St. Cloud distribution center. The new Fingerhut restarted with online and catalog sales in November 2002. In April 2003, The Petters Group, with two minority investors, purchased
uBid
uBid.com was an online auction style and fixed-price shopping website offering goods sold directly by the company and items sold by pre-approved third party uBid-certified merchants. The site specialized in excess new, refurbished and overstock ...
. The same month, Fingerhut Direct Inc. announced it had obtained a $100 million line of credit to finance inventory and receivables. In 2003, Petters invested in Nazca Solutions, whose CEO was
Ted Mondale
Theodore Adams Mondale (born October 12, 1957) is an American politician who served as a member of the Minnesota Senate from 1991 to 1997. He is the elder son of the late former U.S. Vice President Walter Mondale and the late Joan Mondale.
Care ...
. Deikel sold his interest in Fingerhut in 2004.
In January 2005, Petters Group Worldwide purchased the
Polaroid
Polaroid may refer to:
* Polaroid Corporation, an American company known for its instant film and cameras
* Polaroid camera, a brand of instant camera formerly produced by Polaroid Corporation
* Polaroid film, instant film, and photographs
* Polar ...
brand for $426 million, with plans to use it on consumer electronics and new technologies. In 2006, Petters Group Worldwide acquired
Sun Country Airlines.
Petters Group Worldwide became a diverse holding company with 3,200 employees and investments or full ownership in 60 companies, of which it actively managed 20. With offices in North America, South America, Asia, and Europe, it had $2.3 billion in revenue in 2007.
[Liz Fedor]
Sun Country files for bankruptcy
''Star Tribune'', October 6, 2008, Accessed October 8, 2008.
Prosecution, conviction and sentencing
''Circa'' 2008, the
FBI
The Federal Bureau of Investigation (FBI) is the domestic Intelligence agency, intelligence and Security agency, security service of the United States and its principal Federal law enforcement in the United States, federal law enforcement age ...
began investigating Petters for his role in a fraud scheme involving more than $100 million in investments.
[David Phelps and Dan Browning]
Judge, citing flight risk, keeps Petters in jail
''Star Tribune'', October 8, 2008, Accessed October 8, 2008. On September 24, 2008, federal investigators raided the Petters headquarters in Minnetonka and searched Tom Petters'
Wayzata
Wayzata ( ) is a city in Hennepin County, Minnesota, United States. A western suburb of the Twin Cities, Wayzata is situated along the northern shore of Lake Minnetonka about west of Minneapolis. Known for its small-town character and lakeside lo ...
home. Documents released by the FBI,
IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...
, and other federal agencies noted that they were seeking evidence of a scheme to lure investors into funding a company based on tens of millions of dollars in purchases and sales that never occurred. The documents noted that a witness associated with Petters and his company came forward with documents and other information, and later wore a hidden microphone and recorded several conversations involving Petters and others who carried out the fraud. The affidavit alleges that Petters repeatedly admitted to the fraud scheme of providing false information to investors in the tapes; in addition, Petters admitted to falsifying his tax returns. On September 29, he resigned as the head of Petters Group Worldwide.
[Martin Moylan]
Warrant alleges fraud by Petters
Minnesota Public Radio, September 26, 2008, Accessed October 8, 2008.
On October 3, Petters was arrested at his home in Wayzata. He was denied
bail
Bail is a set of pre-trial restrictions that are imposed on a suspect to ensure that they will not hamper the judicial process. Bail is the conditional release of a defendant with the promise to appear in court when required.
In some countries ...
after prosecutors produced documents that alleged Petters had encouraged another person involved with the case to leave the country, that Petters had stated that he regretted turning over his
passport
A passport is an official travel document issued by a government that contains a person's identity. A person with a passport can travel to and from foreign countries more easily and access consular assistance. A passport certifies the personal ...
, and that he had previously spoken about fleeing the country if the fraudulent scheme were discovered. The
U.S. Attorney's Office charged him with
mail fraud
Mail fraud and wire fraud are terms used in the United States to describe the use of a physical or electronic mail system to defraud another, and are federal crimes there. Jurisdiction is claimed by the federal government if the illegal activit ...
,
wire fraud
Mail fraud and wire fraud are terms used in the United States to describe the use of a physical or electronic mail system to fraud, defraud another, and are Federal crime in the United States, federal crimes there. Jurisdiction is claimed by the ...
,
money laundering
Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
and
obstruction of justice
Obstruction of justice, in United States jurisdictions, is an act that involves unduly influencing, impeding, or otherwise interfering with the justice system, especially the legal and procedural tasks of prosecutors, investigators, or other gov ...
.
[James Walsh and Liz Fedor]
Petters jailed; court papers say he planned to flee the country
, ''Star Tribune'', October 4, 2008, Accessed October 8, 2008.
The U.S. Attorney staff noted that the government knew nothing about the scheme until Deanna Coleman, vice president of operations for Petters Co., approached them to confess and offered to help federal authorities investigate. This led to the prosecution of Robert Dean White, who admitted to being involved in creating false bank statements and other documents that were used to trick investors in what he described as a massive
Ponzi scheme
A Ponzi scheme (, ) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are comin ...
. Both individuals made
plea bargain
A plea bargain (also plea agreement or plea deal) is an agreement in criminal law proceedings, whereby the prosecutor provides a concession to the defendant in exchange for a plea of guilt or '' nolo contendere.'' This may mean that the defendan ...
s with federal prosecutors in exchange for providing the government information on how the scheme worked. Coleman and White related that, at the direction of Petters, they would fabricate documents for Petters and others to use in obtaining billions of dollars in loans. The phony records were used to show that Petters Co. was buying merchandise, generally electronic goods, from two suppliers (who were named as co-defendants). Petters Co. would tell lenders that it was selling the goods through
big-box store
A big-box store (also hyperstore, supercenter, superstore, or megastore) is a physically large retail establishment, usually part of a chain of stores. The term sometimes also refers, by extension, to the company that operates the store. The t ...
s and provided purchase orders to substantiate the deals, but the deals were phony and the documents were fakes. Most of the money lent to PCI was secured by
promissory note
A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
s and sometimes
security agreement
A security agreement, in the law of the United States, is a contract that governs the relationship between the parties to a kind of financial transaction known as a secured transaction. In a secured transaction, the Grantor (typically a borrower bu ...
s; the lenders would wire the money to the two suppliers, which would pass it on to Petters Co., less a commission. As more lenders loaned to Petters Co., outstanding loans would be paid off or rolled into new loans from the same lender. Proceeds went to Petters Co. and to Petters himself, and were used to fund other Petters-owned companies, to pay others collaborating in the scheme and, according to court affidavits, for Petters' "extravagant lifestyle."
[Dan Browning]
Longtime executive blew whistle on Petters fraud
''Star Tribune'', October 8, 2008, Accessed October 8, 2008.
Petters' legal troubles led to
Sun Country Airlines filing for bankruptcy; the airline had been relying on an operating loan from Petters, who owned all the voting shares of Sun Country, to help the low-fare carrier pay its bills during the months of October and November 2008.
in addition, Frank E. Vennes Jr., the CEO and sole shareholder of Metro Gem, under a plea agreement, was sentenced to 180 months in prison for aiding and abetting misrepresentations and omissions to investors related to the PCI notes. Metro Gem held 38 outstanding PCI notes with a total principal (face value) of $130.3 million
The FBI Criminal Complaint identifies First Regional Bank, Los Angeles (Century City), California as the bank that moved more than 11 billion dollars through an account for Nationwide International Resources Inc. of Los Angeles. In a separate legal filing in February 2008,
more than seven months before the Petters allegations surfaced, the
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cred ...
(FDIC) issued a
cease and desist
A cease and desist letter is a document sent to an individual or business to stop alleged illegal activity. The phrase "cease and desist" is a legal doublet, made up of two near-synonyms. The letter may warn that, if the recipient does not dis ...
order citing First Regional Bank for failing to comply with regulations regarding
money laundering
Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
with respect to
Individual Retirement Account
An individual retirement account (IRA) in the United States is a form of pension provided by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's ear ...
s and violating rules regarding reporting suspicious activity.
[Federal Deposit Insurance Corporation]
"Order to Cease and Desist"
Docket No. DIC-08-006b
On December 2, 2009, Tom Petters was found guilty in the U.S. District Court in St. Paul, Minnesota on 20 counts of conspiracy, wire and mail fraud.
[ In April 2010, he was sentenced to 50 years in prison for his part in the fraud.] Five other employees have pleaded guilty and are awaiting sentences.[ Petters' associate and primary fundraiser, Frank Vennes, has been charged with numerous counts of fraud and was sentenced to 15 years in prison.]
After more than three years of refusing to speak with the media, Petters spoke with ''Twin Cities Business'' magazine Editor in Chief Dale Kurschner, who spent several hours inside Leavenworth prison interviewing him. In the interview, which was published in the magazine's May 2012 issue, Petters maintained his innocence. It remains Petters' only interview since before he was arrested. In May 2012, Petters also filed a petition asking the U.S. Supreme Court to review his conviction and sentence.
Petters is incarcerated at United States Penitentiary, Leavenworth
The United States Penitentiary, Leavenworth (USP Leavenworth) is a medium security U.S. penitentiary with an adjacent minimum security satellite camp in northeast Kansas. It is operated by the Federal Bureau of Prisons, a division of the Unite ...
in Leavenworth, Kansas
Leavenworth () is the county seat and largest city of Leavenworth County, Kansas, United States and is part of the Kansas City metropolitan area. As of the 2020 census, the population of the city was 37,351. It is located on the west bank of t ...
. His earliest possible release date is April 25, 2052, when he would be 94 years old.
Philanthropy
Petters was appointed to the board of trustees
A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...
for the College of St. Benedict in 2002; his mother had attended the school. In 2006 he gave $2 million for improvements to St. John's Abbey on the campus of adjacent Saint John's University St John's University may refer to:
*St. John's University (New York City)
** St. John's University School of Law
**St. John's University (Italy) - Overseas Campus
* College of Saint Benedict and Saint John's University, St. Joseph, Minnesota and C ...
. In light of the criminal prosecution, St. John's Abbey arranged to return the $2 million gift to the court-appointed receiver for the Petters bankruptcy. In October 2007, Petters made a $5.3 million gift to the College of St. Benedict to create the Thomas J. Petters Center for Global Education. In 2006, he served as a co-chairman of a capital campaign at his high school, Cathedral High School, and offered to match donations up to $750,000.
Petters formed the John T. Petters Foundation to provide gifts and endowments at select universities to benefit future college students. The foundation was formed to honor his son, John Thomas Petters, who was killed on a visit in 2004 to Florence
Florence ( ; it, Firenze ) is a city in Central Italy and the capital city of the Tuscany region. It is the most populated city in Tuscany, with 383,083 inhabitants in 2016, and over 1,520,000 in its metropolitan area.Bilancio demografico an ...
, Italy
Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical re ...
. The college student inadvertently wandered onto private property where the owner, Alfio Raugei, mistook him for an intruder and stabbed him to death."[Manslaughter Conviction In John Petters Slaying](_blank)
, WCCO.com, July 1, 2005, Accessed October 8, 2008. In response, in September 2004, Tom Petters pledged $10 million to his late son's college, Miami University
Miami University (informally Miami of Ohio or simply Miami) is a public research university in Oxford, Ohio. The university was founded in 1809, making it the second-oldest university in Ohio (behind Ohio University, founded in 1804) and the 10 ...
.[Tom Petters donates $10 million to his late son's college](_blank)
''Minneapolis / St. Paul Business Journal'', September 17, 2004, Accessed October 8, 2008. He later promised an additional $4 million, with the total to support two professorships and the John T. Petters Center for Leadership, Ethics and Skills Development within the Farmer School of Business.[Dave Matthews]
FBI raids MU donor's home, office
, ''Miami Student'', October 3, 2008, Accessed October 8, 2008. Miami University has since returned Petters' donation following his conviction. [
] Petters also donated $12 million to Rollins College
Rollins College is a private college in Winter Park, Florida. It was founded in November 1885 and has about 30 undergraduate majors and several graduate programs. It is Florida's fourth oldest post-secondary institution.
History
Rollins Colle ...
in Winter Park, Florida
Winter Park is a city in Orange County, Florida, United States. The population was 30,183 according to the 2022 census population estimate. It is part of the Orlando–Kissimmee–Sanford, Florida Metropolitan Statistical Area.
Winter Park was fo ...
, where he was a member of the Board of Trustees, to create two new faculty chairs in International Business.
References
{{DEFAULTSORT:Petters, Thomas
1957 births
2008 in economics
American businesspeople in retailing
American money launderers
American prisoners and detainees
American confidence tricksters
Living people
People from St. Cloud, Minnesota
People from Wayzata, Minnesota
Prisoners and detainees of the United States federal government
Pyramid and Ponzi schemes
American people convicted of fraud
American businesspeople convicted of crimes
People convicted of money laundering