Businessman Arrested In Bank Fraud Case Spokane Man Indicted In Montana, Faces 12 Counts In Connection With Bank Failure

A Spokane businessman was arrested Thursday on charges accusing him of being the mastermind behind a $10.5 million Montana bank fraud scheme.

John Earl Petersen, president of JC Investments Group, is named in an indictment alleging 12 counts of bank fraud, money laundering and conspiracy.

Petersen, 45, was arrested at his South Hill office.

He was ordered to remain in jail following an initial hearing Thursday afternoon before U.S. Magistrate Cynthia Imbrogno.

At a detention hearing today, she is expected to order Petersen to Montana, where the criminal charges were filed.

Petersen has maintained his innocence.

“I wasn’t involved, absolutely not,” he told The Spokesman-Review last fall.

The fraud scheme lasted six years and ultimately led to the financial collapse of Mountain Bank of Whitefish.

The Federal Deposit Insurance Corp. covered the losses as a special federal task force began an investigation.

Last year, the former president of the defunct Montana bank and three other officers were indicted. They later pleaded guilty to fraud-related charges.

Under terms of a plea bargain, Werner E. Schreiber and the other officers agreed to assist investigators in building a case against Petersen.

The case was presented this week to a federal grand jury in Great Falls, Mont., and the indictment was returned Thursday.

A 13th count seeks forfeiture of 47 pieces of jewelry seized from Peters en’s Spokane home on Dec. 5, 1996. It also seeks forfeiture of $6.3 million in cash proceeds from other property allegedly derived from criminal acts.

Seizures include a $250,000 home on High Drive that Petersen was buying and remodeling, several vintage cars, a boat and hundreds of acres of land slated for development in Montana and Arizona.

Investigators say the scheme began in early 1989 when Michael Allen, a dentist from Columbia Falls, Mont., asked Mountain Bank for a $300,000 loan.

As collateral, the dentist turned over $500,000 worth of diamonds to the bank.

Later, bank officers were persuaded to release the diamonds so they could be sold by Petersen to an Asian investor as part of a $27 million deal.

The diamonds were taken by a courier to Sandpoint, but the gem deal never occurred.

Allen, who hasn’t been indicted, refused to repay the $300,000 loan and referred bank officials to Petersen.

Court documents say Schreiber and other bank officials “became embroiled in Petersen’s promises that he was to receive millions of dollars” and would pay off the loan.

As the bank officials waited, they conspired with Petersen to accept thousands of dollars’ worth of worthless checks.

Those worthless checks, drawn on Petersen’s bank accounts in Spokane, Coeur d’Alene and New York City, were deposited in Mountain Bank.

The indictment alleges Petersen used that scheme to fraudulently obtain additional money.

Following deposit at Mountain Bank, Petersen’s checks would be sent through the Federal Reserve check-clearing process to the issuing bank.

Those banks would not honor Petersen’s checks and would return them to Mountain Bank.

“Co-conspirators working inside Mountain Bank then would remove the worthless checks from the daily financial correspondence of the bank to ensure that the fraudulent transactions generated by the initial deposit would be concealed from other bank employees, banks examiners and auditors,” the indictment alleges.

, DataTimes ILLUSTRATION: Color photo

MEMO: This sidebar appeared with the story: THE PETERSEN FILE Investigators believe a Spokane businessman realized $6.3 million from bank fraud. Property seized from bank fraud suspect John Petersen includes: $250,000 home on High Drive Several vintage cars A boat Hundreds of acres of land 47 pieces of jewelry