Scheme Crumbling Down
Petters’ Ponzi scheme started to crumble when Acorn Capital Group found out that the payments (and you could also say proceeds) were not going directly to these lockbox accounts of Petters. The firm sued him for missing an August payment worth USD273 million. After two weeks, Deanna Coleman blew the whistle to authorities. She swore to help the authorities by wearing a hidden tape recorder, and testifying that she had been aiding Petters to fake documents to entice investors.
Justice is swift, because after only a month-long trial, on December 2, 2009, Petters received a 50-year federal sentence. He was convicted of 10 counts of wire fraud, three counts of mail fraud, one count of conspiracy to commit mail and wire fraud, one count of conspiracy to commit money laundering, five counts of money laundering, and obstruction of justice. Five other unnamed employees have pleaded guilty. Petters’ primary fundraiser, Frank Vennes, has been also charged with numerous counts of fraud. Tom Petters' conviction spilled over to his companies. For example, Sun Country Airlines filed for bankruptcy, because the airline had been receiving loan proceeds from Petters’ scheme.
Authorities found that Petters had been running a fraudulent scheme for the past 14 years, approximately started in 1995. 14 years. Wow! According to experts, and I’m sure you would all agree that this is an incredible amount of time to conceal a fraudulent activity. Investors and debtors didn’t detect the scam right away, because of the elaborate way that Petters and his accomplices carried out the Ponzi Scheme. Plus, of course, who would question a stunning 15% to 22% consistent annual returns that Petters promised. A very attractive number that enticed investors. But also an improbable number that should have raised questions if one is familiar to the much lower returns of short-term to medium-term fixed income securities. We are talking an average of 1% to 7%. Ponzi schemes work because people are always looking for easy money, and riding on an opportunity to buy into success stories. Petters’ career was like one of them, a one-in-a-million success story. Having a strong passion for business since high school, a college drop-out, within just a span of 20 years, his company boasted a USD2.3 billion dollars in revenue even managing to acquire well-known brands such as Polaroid and Sun County Airlines. Petters gained a reputation as a smart, hardworking, charismatic salesman by turning a small liquidation company and turning it into a billion–dollar business, “I thought that everything he touched turned to gold," said George Wozniak, a travel agency owner who once considered a business deal with Petters. Everyone wanted to bet on the King Midas of Minnesota and earn money.
See you on the last part.