Petters Case: Confessions of Fraud, Stupidity, and Rationalized Behavior

Minnesota businessman is charged with fraud. His employees confessed to helping bilk investors.


I recently wrote about an entrepreneur and his company here in Minneapolis that are accused of running the biggest Ponzi scheme since, well, Ponzi. You can read my take here in my home blog of What Would Dad Say. Very little about this story has been covered by national media, yet.

The short version of the federal prosecutors' case is that this guy Tom Petters would allegedly dummy up invoices showing a sale to Costco or Sam's Club of electronics products. He's accused of then taking these fake paper invoices to investors, hedge funds, individuals, and even nonprofits with some song and dance about needing short-term cash until the invoices could be paid. If the allegations are true, then some smart people saw dollar signs—"24 percent interest, fer cripes' sake!"—and may end up losing their money, shirt, and rep. We're talking billions of dollars.

Three of Petters's cronies have pleaded guilty to charges of fraud, including the employee who turned him in. The Minneapolis Star Tribune reports:

Federal investigators' first inkling of a possible investment fraud involving Twin Cities businessman Tom Petters came Sept. 8, when one of his longtime employees approached them and said she had helped him bilk more than $3 billion from unwitting investors....

Her guilty plea was one of three Wednesday. Robert Dean White, 67, of Excelsior, and Michael Catain, 52, of Shorewood, also admitted to their roles in the scheme, which involved the creation of false bank statements and other documents that were used to trick investors into funding what they called a giant Ponzi scheme.

The prosecution's case makes for a fascinating story about greed, stupidity, and how one can rationalize almost any kind of behavior. The employees who have confessed to helping Petters create the alleged scheme have lived high on the hog, as we used to say. "All three defendants said they earned millions of dollars by participating in the scheme. White said he got a salary and generous bonuses, 'at Christmastime, usually,'" the Star Tribune reports.

Alas, whether or not the charges and confessions are true, stupidity makes for a lame legal excuse, and so does rationalization.

Two things we can learn from the prosecution's case:

  1. If something smells, trust your nose.
  2. If something appears too good to be true, chances are awfully good it isn't.

G. L. Hoffman is a serial entrepreneur and venture investor/operator/incubator/mentor. Two of his companies have traveled the entire success path from the garage to IPO. Currently, he is chairman of JobDig , and his blog can be found at or at

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