A major donor to Miami University and former chief executive of Petters Group Worldwide is under investigation by the FBI for his alleged role in a fraud scheme involving more than $100 million in investments.
Since 2004, Tom Petters has pledged $14 million to Miami, with the John T. Petters Center for Leadership, Ethics and Skills Development set to open as part of the new Farmer School of Business in fall 2009.
Petters was named in an affidavit presented by the FBI in court last Friday. The affidavit said one of Petters’ holdings-Petters Company, Inc. (PCI)-created false documents telling investors the company bought wholesale goods from two Petters “shell” companies, vendors Enchanted Family Buying Co. and Nationwide International Resources (NIR).
The documents said the company then resold these goods to retailers such as BJ’s Wholesale Club, Wal-Mart and Sam’s Club. However, the goods were allegedly fictitious, and the sales never occurred.
The affidavit said a cooperating witness, who allegedly worked with Petters, presented documents to federal officials informing them of the supposed scheme, which dated back to the mid-1990s.
Current PCI net accounts receivable was listed at $1.9 billion, however the witness said the accounts receivable figure was based on false documents and the actual figure was “substantially less.”
In September, federal officials taped conversations between Petters, others accused in the affidavit and the witness. The affidavit said these conversations allegedly reveal Petters admitting to the fraud scheme, planning to leave the country and preparing fabricated defense strategies if discovered.
According to the Minneapolis Star-Tribune, 50 FBI cars raided the home and office of Petters, both located in the Minneapolis/ St. Paul area, last Wednesday. On Monday, Petters resigned as chairman and CEO of Petters Group Worldwide, citing the past week’s events as an impossibility to run the day-to-day operations of the company.
Petters was not indicted at press time, and his attorney, Jon Hopeman, says Petters will maintain his innocence.
“I won’t have any comment for Mr. Petters except to say he maintains his innocence, and if he ever is charged with anything he will fight,” Hopeman wrote in an e-mail statement earlier this week.
According to Associate Director of University Communications Claire Wagner, Petters donated $10 million to endow two professorships in “curricula development and opportunities for students to practice and enhance their leadership and professional skills.”
The center would be named after Tom’s son, John, a former Miami student who was killed during spring break in Italy in 2004.
“(John Petters) was truly excellent as a student,” political science professor Karen Dawisha, who had John in her class, said via e-mail.
According to Miami’s general counsel Robin Parker, Petters’ gift is being distributed in eight payments of $1.25 million. Miami has currently received $5 million of the $10 million gift.
The Love & Honor Campaign also reported that Petters pledged a $4 million gift to establish a chair in Asian Business in the Farmer School in the name of his daughter, Jennifer, who graduated from Rollins College in Winter Park, Fla., in 2006. Documents show that Petters has currently paid Miami $200,000 of the gift.
He has also paid in full a John T. Petters International Scholars fund worth $105,000.
President David Hodge said the university is waiting for more details of the Petters incident to be released before taking any action with his gifts.
“At this point there is little to say since it is an ongoing investigation,” Hodge said via e-mail. “Obviously we will be monitoring this closely.”
Associate Vice President for University Advancement Brad Bundy said there is an agreement between Miami and its donors.
“What we do is create an endowment gift agreement, and that is to ensure that the intentions of the donor are met in perpetuity,” Bundy said.
“Our obligation is to make sure that we use peoples’ gifts in accordance with what the agreement was at the time.”
Bundy added that a naming committee chaired by Vice President of University Advancement Jayne Whitehead approves all names of physical spaces at Miami.
Bundy said the university advancement office will not jump to conclusions while Petters is under investigation, and to the best of his knowledge, Miami has never turned down a monetary gift or naming opportunity because of possible scandal tied to the donation.
Bundy also added that endowment gift agreements are deemed null and void if payments of pledged gifts cease to come to the university, and could not speculate on how Miami would act if Petters ceased to donate his pledge in the future.
Whitehead reiterated the terms of the endowment gift agreement and also declined to speculate. She said she could not recall a time the naming committee declined a naming opportunity request because of scandal surrounding the individual.
Roger Jenkins, dean of the Farmer School, declined to comment.
The first formal charges in the Petters incident came Tuesday against former PCI officer Robert Dean White, who was named in the affidavit.
According to the Star-Tribune, White was charged with mail fraud and money laundering in U.S. District Court.
Petters is also facing scrutiny in civil court as well. Hedge Fund Interlachen Capitol Group sued Petters Group Worldwide on Wednesday, claiming Petters persuaded their company to invest $60 million in a phony deal for televisions.
Oxford criminal defense attorney Dan Haughey said Petters will more than likely face an indictment for fraud allegations based off of supposed testimony of the cooperating witness.
“Well, (based) on the fact that they’re entitled to a search warrant to search the person’s home and place of business, then certainly they’ve met that probable cause standard (for an indictment),” he said.
Haughey also affirmed the severity of the allegations against Petters.
“I’m sure (the federal prosecution) can bring a number of charges that would have the accused spending the rest of their (lives) in federal prison,” he said. “Anything, whether it’s local, state or federal, is going to be dependent, in some regard, on the number of people that are involved and the amount of money … we’re talking millions and billions of dollars being involved in this fraudulent scheme … as far as white collar crime gets, I’d say this is the top of the charts, I certainly do not envy (Petters’) position.”
Haughey added he does not foresee Petters’ case being resolved via settlement, and that a potential trial would be a drawn-out process.