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ST. PAUL, Minnesota (Reuters) - Accused Ponzi schemer Tom Petters tried to put off an audit of his businesses shortly before they collapsed, the government's star witness testified on Monday.
Deanna Coleman, the whistle-blower for the estimated $3.65 billion alleged fraud, also told a St. Paul, Minnesota, federal jury that Petters' company used fake merchandise orders "basically since day one," and regularly searched for new investors to pay off earlier investors.
Prosecutors accused Petters of fraud, money laundering and other charges for falsely promising investors big returns by financing his company's purchase and sale of electronics goods to retailers such as Costco Wholesale Corp and Wal-Mart Stores Inc's Sam's Club.
The Minnesota businessman's now-bankrupt empire once included companies such as Polaroid and Sun Country Airlines. Petters was jailed in October 2008, and his trial began last week. It may last through at least much of November.
Coleman, a former vice president for Petters, pleaded guilty to conspiracy in September 2008 and agreed to cooperate with prosecutors. Six others have also entered guilty pleas. Defense counsel last week began efforts to shift blame for the alleged fraud toward Coleman and away from Petters.
At Monday's proceedings, the 43-year-old Coleman said Petters was afraid an audit would unearth how transactions the company claimed to perform were a sham.
"Auditors usually want proof of the merchandise and we didn't have any of that stuff," she said.
Coleman said she met with Petters on September 8, 2008, after earlier being fitted by prosecutors to record his statements.
On a tape played to the courtroom, Petters at that meeting played down the chance he could face prison time.
"If worse came to worst, you would not go to jail," he said. "I'm sure I wouldn't."
It was not clear how long Coleman would testify for the prosecution, or when cross-examination might begin.
Prosecutors have said that Petters schemed to raise new money to repay earlier investors, fund company expenses and finance a lavish lifestyle including expensive cars and homes.
Petters' case gained prominence after last December's arrest of Bernard Madoff for a larger Ponzi scheme.
The case is USA v. Petters et al, U.S. District Court, District of Minnesota, No. 08-00364.
(Reporting by Todd Melby; Writing by Jonathan Stempel; Editing by Steve Orlofsky)
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