Petters Group Worldwide LLC founder Thomas Petters, convicted of running a $3.5 billion fraud, should be sentenced to 335 years in prison, U.S. prosecutors recommended.

Petters, 52, was convicted in December of 20 criminal counts in what prosecutors said is the biggest fraud in Minnesota history. In a sentencing memorandum filed yesterday, they asked U.S. District Judge Richard Kyle in St. Paul to give Petters the maximum sentence, more than twice the 150-year prison term given to Bernard Madoff.

“The defendant’s fraud is staggering and unprecedented in size and impact on victims and the community,” prosecutors argued in the court filing.

Petters ran a Minnetonka, Minnesota-based business empire that bought companies including Sun Country Airlines Inc. and Polaroid Corp. until federal agents raided his home and offices on Sept. 24, 2008. Petters used one of his companies, Petters Co. Inc., or PCI, in an illegal scheme that raised cash to support his money-losing businesses and lavish personal lifestyle, prosecutors said at his trial last year.

Petters was convicted of all of the counts against him, including fraud, conspiracy and money laundering, by a federal jury in St. Paul.

Prosecutors claim Petters used PCI to lure hedge funds and other investors into giving him money to finance non-existent deals to buy shipments of consumer goods.

Government lawyers argued in their papers that Petters defrauded his best friend, his father-in-law and a long-time business partner to keep his illegal scheme afloat. Other victims included “at least 10 pastors, three missionaries and dozens of retired, elderly individuals,” they said.

Petters, who testified in his own defense, claimed he was innocent and that the fraud was committed without his knowledge by former company Vice President Deanna Coleman and Robert White, the company’s former chief financial officer.

Petters also told jurors that the 2004 murder of his son forced him to rely on Coleman instead of paying attention to the affairs of his company.

Secret Tapes
During the trial, prosecutors played tape-recorded conversations secretly made by Coleman, who turned in Petters to the authorities and testified against him.

“That Mr. Petters sprinted out from St. Cloud and a small stereo store, that his reach would exceed his grasp, that he over-promised and underperformed, that he loved his life and his family and his employees and the memory of his murdered son, that he gave millions away, that he acted as a mentor, bought businesses and was visible in the community are all true,” Engh said, in papers quoting Albert Camus, F. Scott Fitzgerald, Walt Whitman and Joan Didion.

Engh said Petters has a tumor on his pituitary gland and described him as a “marked man in prison” based on the notoriety of his case. Engh also cited the non-violent nature of the crimes, Petters’s philanthropy and the demands by his hedge- fund victims for unreasonable rates of return.
“The victims’ conduct contributed to the loss,” Engh said. “By requiring inordinate returns, the hedge funds and their investors assured themselves a failed business model.”

Petters is scheduled to be sentenced April 8.