Accountant says Petters lied, cheated on taxes

An accountant who worked for businessman Tom Petters says Petters cheated on his taxes, misled investors, and used company money to pay for homes and other personal expenses.

Petters is on trial for allegedly leading a Ponzi scheme that ripped off investors for some $3.5 billion. They thought they were financing the buying and selling of TVs and other consumer electronics, but federal prosecutors say the goods didn't exist.

Accountant Jim Wehmhoff told jurors he had done Petters' personal taxes for more than a decade, before joining Petters' company about six years ago.

"The tax returns were fabricated."

After he became a Petters employee, Wehmhoff said he steadily found out more and more things about the company's finances didn't add up.

Wemhoff is one of seven witnesses who worked with Petters and have cut plea deals hoping for a reduced sentence in exchange for helping the government prosecute Petters.

Wehmhoff said Petters had more than a dozen companies as part of his conglomerate. He said they all lost money consistently, except for Petters Co. Inc, the operation at the center of the trial. PCI could put the whole Petters' organization in the black, at least in the mid to late part of this decade.

Wehmhoff said Petters and others wouldn't provide him with complete financial records for PCI and the company turned out to be at the heart of the alleged Ponzi scheme.

Wehmhoff also testified he saw a lot of tax fraud at Petters' company. He said Petters took money from PCI, claiming it was a loan when it was really income.

Wehmhoff also said Petters under-reported income on taxes for several years, telling the IRS he was losing money. But for the same years, investors and lenders were shown tax returns that indicated Petters made a lot of money -- $25 million one year.

"The tax returns were fabricated," Wehmhoff said.

Wehmhoff also said Petters misdirected money from the sale of company real estate to himself, when it should have gone to one of his companies. And, Wehmhoff said Petters used PCI money to buy or build homes.

Wehmhoff said Petters would declare, "I am PCI."

With Wehmhoff's testimony, jurors have now heard from four of seven employees or business associates of Petters who've agreed to testify against him. They're all hoping for reduced sentences in exchange for helping with the prosecution of Petters.

The first three -- Deanna Coleman, Robert White and Larry Reynolds -- admitted to lying repeatedly to investors and faking documents.

Coleman admitted to stealing hundreds of thousands of dollars from Petters and lying to the Hennepin County Divorce Court during her recent divorce.

White estimated he made up over 10,000 purchase orders, bank statements and other documents.

Larry Reynolds acknowledged he is a disbarred lawyer and convicted felon with a history of running scams on everyone from auto insurers to the Church of Scientology.

Their credibility is an issue, but prosecutors hope jurors will believe Coleman, White and Reynolds, finding their words are backed up by secret tape recordings of Petters and hundreds of documents.

The tapes and long trail of e-mails and other documents seem quite damning.

On several tapes, Petters openly discusses how a fraud is going on at his company. And at one point he says "it's not just me that knows we're committing a crime."

The trial is expected to last about four more weeks and it's unclear if Petters will take the stand to testify in his defense.

Petters' attorneys contend he is innocent and he was betrayed by Coleman, who carried out the Ponzi scheme behind his back.