Not long after Deanna Coleman decided to blow the whistle on the fraudulent activities at PCI, many more Petters accomplices began to come forward. As more of the pieces of this $3.65 billion dollar Ponzi scheme fell into place, the ongoing operations of this massive fraud began to make sense. Almost three years later, investigations are still underway, with the hopes of fully rooting out an extremely pervasive problem in the financial world.
First, there was Tom Petters, the mastermind of the PCI Ponzi scheme. Petters was the first to be arrested, for his involvement, and the first to be convicted. With the help of Deanna Coleman and Robert Dean White, who both agreed to wear wired recording devices to meetings with Petters, the FBI managed to record Petters discussing the Ponzi scheme at PCI and also his intentions to flee the country if operations at PCI were discovered. Petters was convicted on 20 counts of wire and mail fraud, conspiracy, and money laundering in April of 2010. He is currently serving a 50 year prison sentence, without parole, in the United States penitentiary in Leavenworth, Kansas. Though the case against Petters brought overwhelming evidence of his ongoing involvement in the PCI Ponzi scheme, he maintains his innocence in the case. So, who were the other people involved?
Michael Catain, a 52 year old Shorewood Minnesota resident, was the money launderer for PCI. Catain had created a company called Enchanted Family Buying, CO. (EFBC). EFBC was essentially a shell corporation with a bank account. Catain and Petters gave investors bogus reasons why their investment in PCI had to go first to EFBC. Investors would give their PCI investment to Catain, who would then deposit the investment in his EFBC bank account. Catain would then transfer these funds to PCI, keeping a commission on every transaction for himself. In all, Catain funneled more than $12 billion dollars to PCI, through his EFBC bank account, and made more than $3 million dollars for himself. Catain plead guilty to money laundering in September of 2010 and, though he faced a 20 year sentence, he received only 7 years.
Larry Reynolds, a Las Vegas businessman, ran a subsidiary of PCI called Nationwide International Resources (NIR). NIR was a Los Angeles based firm that had once brokered the transactions between big-name retailers and PCI, when PCI was still in the business of actually selling anything. When PCI stopped acquiring electronics goods in 1995, Larry Reynolds continued to operate NIR as if it were making transactions. He created fake retail purchase transactions so that all the money funneling through NIR would look legitimate. In all, he laundered more than $10 billion dollars through NIR. His indictment brought with it a curious discovery: Larry Reynolds was actually named Larry Reservitz. He had prior mob ties, had been living in the witness protection program for more than a decade, and was drawing a monthly stipend from the federal government for his cooperation in cases he gave testimony for. Somehow, the federal government had failed to notice that they had a major money launderer on their payroll. Larry Reynolds plead guilty to money laundering and conspiracy and was sentenced to 10 years and 10 months in prison.
Robert Dean White, a high-ranking PCI employee, was in charge of forging financial documents that legitimized the phony transactions taking place within the Ponzi scheme. White eventually wore a wired recording device, in cooperation with the FBI, and helped record Petters discussing intentions of fleeing the country to avoid capture. He plead guilty to mail fraud and money laundering. For his involvement in the scheme, White faced almost 20 years in prison but was sentenced to only 5 years due to his cooperation in bringing down Petters.
In the years leading up to the fall of the PCI Ponzi scheme, an Illinois based hedge fund called Lancelot Investment Management, LLC. invested nearly all of its working capital, about $200 million dollars, in the PCI Ponzi scheme. The operator of the fund, Gregory Bell, along with the fund’s accountant, Harold Alan Katz, apparently became aware in 2007 that all their money was tied up in a Ponzi scheme that was unraveling, Katz and Bell then became complicit in the fraud, misrepresenting the integrity of PCI to their investors. Katz conducted numerous “round-trip” banking transactions, in which Lancelot would transfer money to PCI and then PCI would immediately transfer the money back to Lancelot. Katz made the transfers from PCI appear to be payment of promissory notes to Lancelot investors. Katz, aware that PCI was not actually paying its investors, made bogus spreadsheets which showed that they were. Bell used the “round-trip” banking transactions and Katz’s spreadsheets to lure a total of 43 investors into the PCI Ponzi scheme. Bell plead guilty to wire fraud and was sentenced to 6 years in prison. Katz plead guilty to conspiracy to commit wire fraud and was sentenced to 1 year in prison.
The actions of Petters, Catain, Reynolds, and White would not have been possible without a significant cash flow. In all, more than $12 billion dollars flowed through the PCI Ponzi scheme. So where did this money come from? Two Florida men, recently indicted, are allegedly the source of the lion’s share of that $12 billion dollars. The founders of Palm Beach Capital Management, Bruce F. Prevost and David W. Harold, are awaiting trial. The pair, acting as advisers for 4 hedge funds, convinced the funds to begin rolling cash into PCI notes in 2002. In all, more than $8 billion dollars of the 4 funds’ capital was rolled into PCI notes. At the time of the PCI Ponzi scheme’s collapse, these four hedge funds had about $1 billion dollars invested in PCI notes. Prevost and Harold grossed about $60 million dollars in transaction fees for their part in steering cash to PCI. The fund advisers are each facing 4 counts of securities fraud.
A third Florida man, a convicted narcotics, weapons, and money laundering felon, Frank Vennes Jr. was also recently indicted. Vennes allegedly was the contact between Palm Beach Capital Management and PCI. For his part in ushering more than $8 billion dollars to PCI, Vennes received more than $105 million dollars in commissions. Vennes awaits trial and is facing 4 counts of securities fraud and money laundering.
Finally, there’s the whistle blower. Deanna Coleman, who first went to the FBI to report the Ponzi scheme at PCI and then helped the FBI obtain recorded conversations between herself and Tom Petters, by wearing a wired recording device, had worked for PCI since 1993. In September of 2008, just before she went to the FBI, Coleman was the Vice President of PCI. As second in command to Petters, Coleman was well aware of what PCI was up to and, for years, had been involved in the operations of the Ponzi scheme. However, when she plead guilty to conspiracy to commit mail fraud in September of 2010, she was sentenced to only 1 year and 1 day (the 1 day over a year, allows for good behavior reduction of her sentence). Coleman had been serving her sentence in the minimum security camp for women at Pekin, Illinois. Her sentence was reduced by one and a half months, for good behavior. About 5 weeks ago, Coleman was transferred to the Benton County jail in Foley, Minnesota, where she awaits her August 26th release next month. Most all of the victims of this multi-billion dollar financial scam have still received no restitution and Coleman, a key player in the Ponzi scheme, is already nearing her release from prison. How can this be? Since when does confessing to a crime before you’ve been caught reduce your punishment this completely?
With most of the key players in the PCI Ponzi scheme already convicted, indicted and facing trial, or, in the case of Deanna Coleman, preparing to be released from prison, the focus should be turned to the victims of this scam. For three years, while Minnesota courts and the FBI have worked to convict the perpetrators of the PCI Ponzi scheme, a second, less publicized battle has been raging on.
With each indictment, assets of Petters and his accomplices have been frozen. Remember Tom Petters was personally worth about a $1 billion dollars? The combined assets of accomplices of Petters are in the range of an additional $50 million dollars. Couldn’t the victims of the PCI Ponzi scheme, like Janet Leck, receive some portion of these frozen assets as restitution for their losses? The Mandatory Victims Restitution Act of 1996 (MVRA) requires that the victims of the PCI scheme each receive a restitution judgment against the assets of those convicted in the case. As the cases of Petters and his accomplices came and went, the victims have received no restitution judgments of any kind. In fact the judge has denied any restitution to any victim in this case on the grounds that it would have been too complex to determine and would delay sentencing. How could the victims be cut off from restitution that is clearly required by the law?
Apparently, in Minnesota, the law is not so simple, and to understand why, you must first understand Douglas Kelley.
