The former president of a Montana bank, convicted Tuesday of participating in a multimillion-dollar fraud scheme, will help federal investigators develop charges against a Spokane businessman.
Werner E. Schreiber faces 78 months in prison but will get his sentence reduced for providing information about the dealings of John Earl Petersen of Spokane, federal authorities say.
Schreiber was president of the now-defunct Mountain Bank of Whitefish, Mont., which fell into financial ruin after losing $10.5 million over a six-year period.
He pleaded guilty in U.S. District Court in Missoula on Tuesday to conspiracy, embezzlement, bank fraud and money laundering.
He won’t be sentenced until April, giving federal investigators three months to ask him questions before grand juries in Montana and Spokane.
Newly filed court documents say Petersen got more than $6 million of the “stolen and embezzled funds” of the Whitefish bank.
Petersen has not been criminally charged, but investigators say the 45-year-old president of JC Investments Group Inc. remains the target of a federal task force that includes Internal Revenue Service, FBI and customs agents.
In an interview this fall, Petersen professed his innocence and blamed others. “When the whole story is told, you won’t believe it,” he said.
Contacted Tuesday, Petersen reiterated his innocence.
“All wrong, all wrong, totally 100 percent,” he said of details of the bank fraud described in Schreiber’s plea agreement. Petersen wouldn’t elaborate.
Schreiber is the fourth former officer of the Whitefish bank to plead guilty.
While admitting their limited individual roles in the bank fraud, they all point to Petersen as the mastermind.
Court documents say the scheme began in early 1989, when Michael Allen, a Columbia Falls, Mont., dentist, asked the bank for a $300,000 loan.
He got the loan after turning over an estimated $500,000 worth of diamonds as collateral, investigators say.
Allen told the bank the gems were to be sold by Petersen to an Asian investor for $27 million.
With that sale, Allen told the bank he could repay his loan, court documents say.
Allen convinced Schreiber to release the diamonds so they could be delivered to a courier in Sandpoint to complete the sale.
The gems were delivered but the $27 million deal never happened, authorities say.
Allen, who hasn’t been indicted, refused to repay his $300,000 loan and referred bank officials to Petersen.
According to court documents, Schreiber “became embroiled in Petersen’s promises that he was soon to receive millions of dollars” and would pay off the loan.
Petersen convinced the bank that he needed more money to pay fees and fines before he could finalize the $27 million deal.
“Evidence from witnesses and evidence discovered in several Spokane searches would prove there never was” any deal to purchase the gems, according to the court documents.
But the purported deal became the springboard for Petersen to obtain other loans from the Montana bank.
The scheme later involved issuance of insufficient-funds checks, which the Montana bank officers pulled from ledgers so the bank’s mounting losses wouldn’t be spotted by auditors.