Investor Details $60M Lost in Alleged Petters Scam

Jurors in a Minnesota businessman's fraud trial heard Friday how one hedge fund was fooled into losing $60 million in what prosecutors call one of the largest Ponzi schemes ever uncovered.

Gregg Colburn, a partner in Interlachen Capital Group, of Minneapolis, testified his fund thought it would earn 20 percent interest on a six-month loan to Petters Co. Inc., netting it a $12 million profit. He told how some of the well-known companies owned by Petters Group Worldwide, such as Polaroid Corp., made the April 2008 loan seem like a good investment.

Prosecutors used the deal as an example of how Tom Petters' alleged $3.65 billion Ponzi scheme operated until one of Petters' closest associates, Deanna Coleman, went to the U.S. attorney's office and blew the whistle on him Sept. 8, 2008. She pleaded guilty to conspiracy to commit fraud and faces five years in prison. Prosecutors plan to call her to testify Monday.

Petters, 52, of Wayzata, is charged with 20 federal counts, including wire fraud, mail fraud, money laundering and conspiracy. If convicted, he could be imprisoned for life. He maintains his innocence. Defense attorney Jon Hopeman claimed in his opening statement Wednesday that PCI had started as a legitimate business, and Petters didn't know Coleman and other defendants had turned it into a Ponzi scheme.

In a Ponzi scheme, investors are paid with other investors' money rather than actual profits on their investment.

Interlachen managed $1.1 billion for institutional investors and some wealthy individuals as of September 2008, and while the loss didn't break the fund, it hurt, Colburn said.

"To couple this with the financial collapse last fall was pretty rough ... It's not a lot of fun to have to talk about losing money," he said.

Colburn testified Petters, Coleman and other associates led Interlachen to believe Petters' PCI subsidiary would use Interlachen's $60 million to buy Sony and Panasonic TVs from a supplier who was snapping them up from the bankrupt retailer Circuit City. Interlachen expected PCI to make a quick killing by reselling the TVs to the retailers Sam's Club, Costco and BJ's Wholesale Club, and repay its debt promptly.