Bank Fraud Case Built On Trash, Grime, Videotape Federal Agents Discovered Pattern Of Extravagance, Documents Say
FOR THE RECORD: 3-10-98 Address incorrect: John Petersen, who faces federal bank fraud charges in Montana, lived in an apartment at 307 E. 24th. The address was incorrect in story on Sunday.
White collar crime investigators built their case against John Petersen the dirty way.
They went through his garbage for five years.
The Spokane businessman’s trash contained no evidence that he was involved in real estate investments, as he has told friends, newly unsealed court documents say.
But the documents say his garbage did provide evidence of a lavish lifestyle and forged bank letters, possibly intended to keep drug dealers at bay.
Federal agents didn’t limit themselves to Dumpster diving to get Petersen on charges of bank fraud, money laundering and conspiracy.
They also placed a video camera on a pole to record people visiting a Spokane Valley rental facility used by the 45-yearold businessman.
“Those video recordings reveal unusual late night activity at this location, the removal of car seats and the movement of boxes,” the documents say.
The videotapes led agents to people whose testimony helped convince a federal grand jury to indict Petersen last month.
He’s now the key figure in the $10.5 million collapse of a Mountain Bank of Whitefish, Mont. He remains in custody, awaiting trial in Montana on the charges.
The court documents paint a picture of an alleged playboy swindler.
Millions of dollars went through Petersen’s bank accounts, but he paid no income tax for 10 years, the documents say.
He had a fleet of cars, including one with the vanity plate “Dough.” He had a new, $120,000 Porsche and a vintage Aston-Martin worth $65,000.
He regularly purchased jewelry and art pieces listed in his $365,000 insurance policy for personal property.
In 1996, he bought a view home on High Drive in Spokane for $440,000, and began extensive remodeling.
He also had a twin-engine speed boat - “She-Bear” - that he moored at Silver Beach on Lake Coeur d’Alene.
He financially supported at least two girlfriends whom he allegedly gave cocaine and paid for sex.
He frequently traveled to Las Vegas to gamble at casinos where he left unpaid gambling tabs a decade ago.
And he also especially liked flowers.
His garbage revealed evidence that he paid florists an average of $12,700 a year for four years running. Over the same time, his American Express bills topped $109,000 a year.
“Petersen lives an extravagant lifestyle and has amassed unexplained wealth,” Treasury agent David Benscoter said in a court affidavit.
Petersen is accused of pocketing an estimated $6.3 million in the Montana bank swindle.
Investigators say they know how Petersen spent $2 million, but they can’t trace the remaining $4.3 million.
His wife of 14 years, Carol Jo Petersen, is not charged in the indictment.
While federal authorities describe her husband as a flight risk and someone who made death threats, she defends him in a new court affidavit.
“My husband is not a violent person,” she said. “John is a sensitive, caring and gentle husband and individual.”
Petersen’s attorney, John E. Smith of Missoula, said Petersen has been “unfairly painted as a thug” by federal investigators.
The case is one of the biggest federal fraud prosecutions ever developed in Spokane.
The charges against Petersen came after the bank’s former president, Werner “Buster” Schreiber, and three ex-bank officers pleaded guilty in the scheme of defrauding the bank out of $10.5 million, mostly by processing worthless checks.
The scheme involved a series of money transfers after diamonds used as collateral for a loan to a Kalispell dentist disappeared and the loan defaulted. Bank officials told investigators the diamonds were to be part of a $27 million international deal brokered by Petersen.
When that deal fizzled, checks were drawn on the Montana bank and Spokane banks, and were deposited in Mountain Bank. Money was forwarded to Petersen even though the checks were drawn on accounts without funds, it is alleged.
The officers of Mountain Bank kept the bogus checks on daily “transit account” pages that were falsified to keep the fraud from being detected by banking regulators.
Schreiber and the three other Montana bank officers agreed to help federal investigators in exchange for lighter prison sentences.
The same Montana bank was tied to another money laundering scheme in 1991.
Federal authorities alleged then that money from a Colombian cocaine smuggling ring made its way to Montana to buy land and a Whitefish nightclub.
Two men convicted in that case were tied to the seizure in Florida of 1,700 pounds of cocaine worth $15 million.
A third man, the bank’s vice president, died in a mysterious fall in Glacier National Park less than two weeks before his trial.
Another defendant in the 1991 case, Alfred A. “Alfie” Luciano, remains a federal fugitive. Authorities say he has suspected ties to organized crime on the East Coast.
Schreiber was not indicted in that case, but he was forced to relinquish his formal control over the bank.
Petersen’s name didn’t surface in the 1991 case. But he came to the attention of the federal white collar crime task force in Spokane a short time later. The task force is composed of Treasury, FBI and DEA agents.
Beginning in 1992, task force agents shed their suits and posed as garbagemen. They pawed through Petersen’s trash outside his South Hill office at 327 W. Eighth and his apartment at 307 W. 24th.
Search warrants aren’t needed for such searches of garbage, the U.S. Supreme Court has ruled.
Petersen claimed on his financial prospectus and on his business card that he is in the real estate investment business.
“He has indicated to the IRS that he acts as a middleman for real estate sales and purchases,” the court document said. Petersen, it adds, “has not supplied any documentation to the IRS to support his claims.”
Petersen used a dozen business names, including JC Investments, J&M; Investments, Sandon Canada Investment, CJP Idaho Inc. and Intercontinental Holdings Inc.
“I believe all these companies to be shell companies, that is, companies in name only that do no real business,” agent Benscoter said in the affidavit.
“After conducting over 50 trash pickups, I have never obtained any documents or records that indicate Petersen is in the business of real estate, investments or any other legitimate business,” Benscoter said.
But there were other discoveries in the garbage.
Benscoter said he found “evidence that Petersen has created dozens of documents to make it appear that he has a legitimate source of income.”
Other apparently fraudulent documents were found in the trash, the court documents say.
Agents pieced together shredded letters that appear to be forgeries from U.S. Bank, SeaFirst and Chemical Bank, court documents say. Some of the letters report suspicious transactions on Petersen’s accounts.
“It is unclear why Petersen would create letters which would appear damaging to his reputation,” Benscoter said in the court affidavit.
The federal agent said he believes Petersen “may be holding illegal money for narcotic traffickers and may have lost at least some of the money gambling.”
“By creating phony letters from banks, indicating the banks may go to law enforcement, Petersen can show these to the narcotics traffickers and attempt to stall for time,” Benscoter said.
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