Prosecution rests in Petters trial

The defense is now telling its side in the fraud trial of Minnesota businessman Tom Petters, after prosecutors rested their case early this afternoon.

One of the first defense witnesses Monday was Karl Petters, a cousin of the defendant. Karl Petters used to work at Petters Co. Inc., the company prosecutors say was at the heart of a $3.65 billion Ponzi scheme.

While prosecutors say nearly all of PCI's merchandise deals were a sham, Karl Petters says he was involved in a real deal in 1996. He says PCI bought thousands of home entertainment systems from 3M, which was getting out of that business.

Karl Petters, who is not a defendant, says PCI sold the majority of them to Sam's Club for about $5 million.

Tom Petters' attorneys have said he is innocent and that other top executives carried out the scheme without his knowledge.

Monday morning, an IRS agent concluded her testimony for the prosecution by tracing where the money came from, and where it went.

Special Agent Kathy Klug testified about how money flowed into Petters Co. Inc. from hedge funds and individual investors, including Minnesota business figures Ted Deikel and restaurateur Dean Vlahos.

She says none of it went to buy electronic merchandise as the investors were told. Instead, she says, it went to pay off other investors.

Prosecutors are using her testimony to tie evidence in the case to the 20 specific wire fraud, mail fraud, conspiracy and money laundering charges in the indictment.