This is the beginning of the 2nd part.
Petters’ Reputation
Petters has a good reputation as a businessman, with a promise of 15% to 22% of steady annual returns. To make it appear that he is operating a legitimate business, he informed his lenders and investors that his company will use the money raised to buy electronics, and to resell them to “Big Box” retail companies such as Walmart and Costco. So, if you have invested or lent your money, you would think that this is a profitable venture because of these big, very big clients, and the promised returns are possible. But how did they pulled-off their own style of a Ponzi Scheme? Deanna Coleman and Robert Dean White, former executives of Petters Company helped the US authorities in figuring out how they have pulled-off the operations. The two related that, they would fabricate documents for Petters to show that Petters Company was buying electronic goods, from two fake suppliers. Investors and lenders would wire transfer the money to these two suppliers to make it appear that they are really part of the business transaction. These two dummy suppliers would then deposit back the money to Petters Company less their commission for being part of the transaction. As more investors and lenders gave their money to Petters Company, little did they know that these fresh inflows of capital from new investors and lenders would be used to pay the returns of other investors and lenders, and make it seem like their investment was profiting.
Dummy Companies
To make the investors and lenders have false sense of security, Petters would set up at dummy companies to receive the money on which he has allegedly no control. There were at least four feeder funds confirmed to show the legitimacy of the scheme. It was approximately from 1998 to 2008 when he created a series of investment feeder funds namely; Arrowhead Capital Finance, Lancelot Investors Fund, Palm Beach Finance Partners, and Stewardship Credit Arbitrage Fund, through these funds he raised more than USD4 billion. Petters and his accomplices made it look like investments were going and Big Box retailers were paying directly into the lockbox accounts they’ve created. To define, a lockbox account or lockbox banking is a service provided by banks wherein payments made by customers are directed to a special post office box instead of going to the company directly for a faster and convenient way of collecting money. The bank retrieves the payments, and deposits the funds directly into the company's bank account. Excess proceeds of the investments and loans went to Petters Company and to Petters himself. These funds were used to support other Petters-owned companies, to pay others conniving in the Ponzi scheme and, to support Petters' extravagant lifestyle.
See you on the 3rd part.