Petters Group Worldwide founder Tom Petters was arrested Friday on federal counts of fraud, money laundering and other charges, more than a week after FBI agents raided his home and offices for an alleged multimillion-dollar investment scheme.
He made his first court appearance Friday afternoon, and a federal judge ordered him jailed until his next appearance, at 2:00 p.m. Tuesday.
During that time, federal prosecutors will explore more evidence in the fraud case.
Petters, 51, was charged Thursday with mail fraud, wire fraud, money laundering and obstruction of justice, the U.S. Attorney's Office said in a statement. Petters was arrested without incident about 10 a.m. Friday at his suburban Wayzata home.
His attorney, Jon Hopeman argued that Petters should be released because of his extensive ties to Minnesota.
Hopeman also argued that Petters isn't charged with any violent or drug-related crimes.
But Magistrate Judge Franklin Noel granted prosecutors' request to hold Petters.
Petters didn't enter a plea.
An FBI affidavit filed last week alleged Petters and some associates were involved in schemes since the mid-1990s that defrauded investors of as much as $100 million. One of Petters' associates was recorded as saying the scheme could've totaled $2 billion in fraudulent funds, the document said.
The scheme was tied to Petters Co. Inc., a unit of Petters Group.
According to the affidavit, Petters and some associates lured potential investors by creating false purchase orders, telling investors that PCI was purchasing merchandise from smaller vendors and then reselling the products to larger stores such as BJ's Wholesale Club and Sam's Club.
"The purchase orders and other documents in support of the transactions are entirely fabricated," the affidavit said. "Petters uses these documents to induce investors to invest money."
On Monday, Petters resigned as Petters CEO and chief executive, saying the "events of the last few days" made it impossible for him to continue as leader.
His home and offices were raided last week as part of an FBI search of nine properties and two vehicles. Authorities seized financial documents, computers, cash, credit cards, watches and pill bottles from Petters' home and offices.
The FBI affidavit said the scheme helped fund Petters' other business ventures and lavish lifestyle.
A second defendant was also charged with Petters on Thursday.
Larry Reynolds, 67, of Las Vegas was arrested by FBI agents Friday in Los Angeles.
The FBI affidavit said Reynolds was recorded as saying that he had known about the fake purchase orders for years and that he estimated the amount of fraud to be "in excess of $2 billion."
The affidavit said Reynolds was with a company called Nationwide International Resources Inc., one of the smaller companies allegedly involved in the scheme. Authorities said Reynolds told investors his company was selling large amounts of merchandise to PCI -- as depicted in false purchase orders.
Reynolds got investors to give money to NIR, then he gave the funds to Petters, minus a commission for himself, the affidavit said.
Another Petters associate, Robert White of Excelsior, was charged Tuesday. According to the charging document in U.S. District Court, White created false purchase orders in order to lure investors -- and received millions for his efforts.
Sun Country Airlines, a unit of a Petters subsidiary, has already seen fallout from the investigation.
The carrier warned its employees on Thursday that they should be prepared for potential major layoffs or even a shutdown as early as Dec. 1. But the airline said it issued that letter to comply with legal requirements, and that it has no plans to shut down or slash its work force.
Still, the airline is having cash-flow problems. Earlier this week, Sun Country told employees that half their pay would be deferred until after the first of the year. This is the slow season for the airline and it normally would have taken a short-term loan from its parent company, but the company said that's not an option now.
Petters Group Worldwide had $2.3 billion in revenue in 2007. The company has investments in dozens of companies; Polaroid is among its other well-known holdings.
We will have more information as it becomes available here on kare11.com and on KARE 11 News.
(Copyright 2008 by The Associated Press and KARE. All Rights Reserved.)