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The Turnaround Men

A charismatic entrepreneur, an ex-con turned devout Christian, and the politicians who championed them.

Just after dawn on a cool morning in September 2008, two FBI agents and a police officer walked into the Bellagio Casino in Las Vegas and took the security elevator up to the twenty-third floor, where they knocked on the door of a high-roller haven known as the Grand Lakeview Suite. A Minnesota businessman named Tom Petters answered wrapped in a bathrobe. After a moment’s hesitation, he invited them in. The officer searched the bedrooms and closets to make sure no one was listening, and the FBI agents began peppering Petters with questions.

Then, suddenly, Petters’s Blackberry started ringing. At that moment, 1,700 miles away in the leafy suburb of Minnetonka, Minnesota, more than 50 government agents were swarming into the parking lot of Petters Company Incorporated (PCI). The agents entered the building, ordered everyone out, and began opening safes and rummaging through file drawers. Another team of agents descended on Petters’s mansion overlooking Lake Minnetonka, where they moved from room to room snapping photos and stuffing Petters’s belongings into cardboard boxes.

The next night, Petters, who had just returned from Las Vegas, turned out for a soiree at the Minneapolis-St. Paul International Airport, where one of his companies, Sun Country Airlines, was unveiling its new hangar. More than 100 people attended. Petters looked relaxed as he circled the room smiling and shaking hands. When he stepped to the podium, he sounded an optimistic note and even cracked a joke about the investigation, saying with a smile it “was not the media attention we wanted.” He added, “That, too, shall pass.”

Several days later, Cord Christensen, a longtime friend of Petters who had recently invested $3.6 million in PCI, drove to Petters’s house. Petters welcomed him in. His tie was undone, the first few buttons of his shirt were open, and he seemed to be in an amiable mood. “He was very relaxed,” Christensen recalls. “He was handling the situation, for what it was, better than I would expect anyone to be able to handle it.” Petters calmly explained that the accusations against him were a farce; he had caught a rogue employee embezzling $10 million, and she had gone to law enforcement with trumped-up allegations of fraud. The two men then spent a few minutes chatting about their families. Before Christensen left, they hugged.

Behind the scenes, however, Petters was contemplating an escape. Three days after the raid, he had summoned his designated document forger, a 68-year-old former stockbroker named Bob White, to his home. He hoisted up White’s shirt to see if he was wearing a wire, then asked if he had his passport ready. The two men later spoke by phone. Petters urged White to buy a fake ID and flee the country on his sailboat, presumably so he couldn’t testify, and suggested that he was planning to flee, too. White was wary. “I’m scared as can be, Tom, so I don’t know,” he said. “I have no frickin’ idea how it works.”

“Well, I do. I’m studying,” Petters replied. “Google Marc Rich.” Rich, the uber-wealthy commodities trader who had fled to Switzerland in the 1980s after being indicted for tax evasion and illegally selling oil to Iran, was infamously pardoned in early 2001 by President Clinton—a beneficiary of the Rich family’s generous political contributions. Critics grumbled that Rich’s pardon had been bought. “We’ve helped a lot of people,” Petters added, before rattling off a list of politicians—most of them recipients of Petters’s campaign largesse—who he claimed had called him since the raid. “Oberstar’s called me. Klobuchar’s called me. Ramstad’s called me. ... Ah, Al Franken’s called me.”

Meanwhile, as Petters was hunting for a way out, another man was walking into the heart of the storm. His name was Frank Vennes—and, of everyone affected by the Petters investigation, no one had more to lose. A soft-spoken, deeply devoted Christian, Vennes had brought in the bulk of PCI’s investments, many of them from evangelical Christians who were moved by his personal tale of faith and redemption. Some had sunk their life savings into the venture. Shortly after the raid, Vennes began calling prayer meetings with his investors. He told them he had been blindsided by the allegations of fraud at PCI and explained that Petters had swindled him along with everyone else. “His mother, his father, his children, his brother, his whole family was invested,” says Vennes’s longtime friend and investor Janet Leck. “He was just as shell-shocked as the rest of us.”

TOM PETTERS IS brash and charming and darkly handsome, with deep olive skin and black hair that he wears slicked back. One of seven children, he grew up in a cottage on the banks of the Mississippi River in St. Cloud, Minnesota, where his father ran a fur and fabric shop that had been in the family for generations. From an early age, he had an entrepreneurial bent. According to the Minneapolis Star-Tribune, in the ninth grade Petters told classmates that he knew someone who printed fake money and offered to provide a pile of it to anyone who gave him $20 cash. A handful of friends took him up on the offer. Petters pocketed the money, but never delivered the phony bills. They had to badger him for weeks to get their money back. Two years later, Petters secretly rented an office in downtown St. Cloud and started peddling stereo equipment. Often, he’d skip class and stuff flyers under dorm-room doors at local schools, like the College of St. Benedict and St. John’s University. Before long, he had hired a sales team and was raking in $5,000 a month. As Petters later told the story, his mother learned about the venture when she heard an ad for it on her car radio and was so shocked she almost drove off the road.

After high school, Petters enrolled at St. Cloud State University, but he dropped out after a single quarter and eventually started selling Yellow Pages ads. By the ’80s, he wound up in Colorado, working at a chain of bargain electronics stores. When the chain went bankrupt, Petters bought five of its locations.

It was around this time that Petters had his first tangle with the law. In 1989, Petters arranged to sell 450 refurbished Emerson VCRs to another retailer and collected $75,000 as payment. But he never delivered the goods. When police questioned the owner of the refurbishing shop, who was supposed to have supplied Petters with the equipment, he said he hadn’t had any contact with Petters and never had 450 VCRs for sale at one time.

As part of their investigation, police also questioned a former Petters employee named Chuck Sturgis. He knew nothing about the VCRs, but he said that Petters had opened a credit card in his name, racked up more than $6,000 in charges, and then disappeared. Another associate said Petters had gone back to Minnesota to seek treatment for a cocaine addiction. In 1993, Minnesota authorities issued a fugitive warrant for Petters’s arrest. He agreed to pay restitution and the charges were dropped. Petters then hired a lawyer to have his criminal file in Colorado sealed. The following year, his Minnesota warrants were expunged by the Hennepin County Attorney’s office in Minneapolis.

By that point, Petters was back in business—this time, selling hangover-cure pills to convenience stores. Then, in 1994, he launched Petters Company Incorporated. The idea was to find suppliers that, for whatever reason—be it overstock or slight product irregularities—were selling electronics and other goods on the cheap. PCI would buy these products and resell them to big-box retailers, such as Costco and Sam’s Club, at a profit. The deals were financed by investors, mostly small-time operators who put up $50,000 to $100,000 in return for generous interest.

Around this time, Petters brought on two people who would turn out to be crucial to the operation. The first was his receptionist and office manager, then a 26-year-old former debt collector named Deanna Coleman, who had grown up on a farm in the tiny town of Elbow Lake, Minnesota. The second person was Frank Vennes.

VENNES—A QUIET, socially awkward man with doughy features and coarse, graying hair—grew up in a small North Dakota town and studied business at a state university before opening a pair of pawnshops in the northwest corner of the state. In 1986, his life took a bizarre turn. Federal agents running a sting on a local drug ring began to suspect that Vennes was laundering drug money. Undercover IRS operatives posing as Chicago businessmen started giving Vennes piles of cash to smuggle out of the country—all told, he transported $370,000 to the Bahamas, the Isle of Man, and Switzerland.

Eventually, Vennes was arrested and pled guilty to money laundering—and also no contest to cocaine dealing and illegally selling firearms. He was sentenced to five years in Minnesota’s Sandstone penitentiary. Vennes later sued the federal government for $10 million, claiming that, after $100,000 of the $370,000 had gone missing—having been either lost or stolen by Vennes’s associates in Geneva—the undercover IRS agents had told him they were members of the Chicago mob and had threatened to kill him and “dismember” his children unless he recouped the money. It was this threat, he argued, that prompted him to sell drugs and guns. The case was thrown out, and Vennes lost his appeal.

After his arrest, Vennes’s wife divorced him and his creditors forced him into bankruptcy. Around this time, his mother connected him with a Pentecostal pastor and urged him to turn his life over to God. It was a hard bargain to resist. “I could trade garbage for gold,” Vennes would later tell an audience at North Central University, a Pentecostal college in Minneapolis. “I could bring my mess up to an altar and change it for something good. ... I said, ‘Lord, I want you to take everything that I got, as ugly as it is, and you make something out of it.’”

During his prison years, Vennes threw himself into studying the Gospel, with the help of a prison ministry known as Charis. Among the people he met through the program was Janet Leck, now an 80-year-old former florist and Charis volunteer, whose late husband, D’arcy Leck, ran the Bible studies Vennes attended. Janet Leck says that, initially, Vennes dreaded going to the meetings because they forced him to confront his misdeeds. But he eventually became one of the group’s most devoted disciples. “He was a leader among the prisoners who came to chapel,” she told me when I visited her home, which was cluttered with angel figurines and photos of her great grandchildren. “A lot of them came to him for advice and prayer. He was so intelligent and so committed to the Lord.”

After his release from prison in 1990, Charis members helped Vennes get back on his feet. The Leck family loaned him money, gave him furniture, and welcomed him to their home for prayer meetings and family dinners. Shortly after leaving prison, Vennes remarried. D’arcy Leck was his best man and Janet arranged the flowers. Another Charis member, who owned a punch-press shop near Minneapolis, offered Vennes a job as a janitor—he earned $7 an hour scrubbing grease from a factory floor. Vennes also borrowed money from his Charis friends to buy odds and ends from pawnshops and rummage sales, which he then re-sold at a profit. Before long, he was making more scavenging than he was at his day job, and he began trading in more lucrative goods, like rare coins. During these years, Vennes clung to the idea that God was preparing him for something great: He would later liken himself to Joseph, who spent 13 years languishing in dungeons and pits before becoming an adviser to the pharaoh of Egypt.

Then one day in 1994 or 1995, a woman named Ruth Kahn brought Vennes into Petters’s office to discuss the possibility of recruiting investors for PCI. Just how the meeting came about remains a mystery (Kahn declined to speak about it), but one thing is clear: Vennes regarded the encounter as a gift from God. “I had nothing. I had no capital,” Vennes later recalled. “But it was a faithfulness of God ... that spoke to my heart and [said], ‘Go. Go ahead anyway.’ ... I heard clearly to go, so I went. And I captured this opportunity that He provided.” Petters did his part to reinforce the notion that God had brought them together. Though not particularly religious, in Vennes’s presence he would sometimes quote scripture and wax lyrical about prayer.

Shortly after their first meeting, Vennes formed a company called Metro Gem, which he used as a vehicle to recruit investors for PCI. Among the first people he approached were Charis members. “He came to those of us who helped him and offered us this investment opportunity,” Leck recalls. “He said, ‘I want to pay back to you people and bless you the way you blessed me.’” Eventually, Vennes began offering the investment to other believers, particularly pastors and missionaries who were struggling financially. The goal was to help them make ends meet. “These were people who had spent their lives on the mission field or running small churches—wonderful people who were generous to the core,” explains Carolyn Anderson, an attorney who represents many of the religious leaders who invested. “They were brought in because they had spent their whole lives giving it all away and had nothing to fall back on.”

Like Charis members, many of the pastors and missionaries saw the investment—which often brought annual returns of 20 percent or more—as God’s way of providing for them or rewarding them for their generosity. With this in mind, they scraped together their meager savings or mortgaged their homes and sunk money into PCI. Wynona Laws, a spunky 83-year-old former missionary and bookkeeper, first heard about the investment more than a decade ago from her daughter, who works at a church in Minneapolis. At the time, she was living on $378 a month in Social Security and had just been forced to sell her home and move into low-income senior housing. She took the modest proceeds, cashed in her life insurance, and invested all $60,000 into PCI. “What I invested was all of what I had,” she says. “And I did it with joy.”

By the late ’90s, Vennes had begun reaching outside evangelical circles and connecting Petters with wealthy local businessmen—among them restaurateur Dean Vlahos, who invested more than $15 million. It’s unclear how Vennes made these connections, though those who know him maintain he has an uncanny business sense. (“When you look at him sorting through a column of numbers, it’s amazing,” explains one person familiar with Vennes’s business affairs. “The term that springs to mind is ‘savant.’”) Vennes had a taste for Rolex watches, and, as his fortunes grew, he bought a 15,000-square-foot home on the shores of Lake Minnetonka. Yet he also continued to drive his clunky old Buick, and friends say he maintained his humble air. “Frank was never a social climber,” explains Clarence St. John, an Assemblies of God pastor. “If he had time to spend, he would spend it with the poor.” Vennes was one of two primary funders of the Minnesota Correctional Education Foundation, which raised private-sector money to bring college education into prisons. On weekends, he ministered to inmates through Charis Bible studies, where he would often share his life story. “It gave them so much hope,” Leck recalls. “They’re down in the bottom of the barrel, thinking they’re never going to get out. Frank comes in and says, ‘I’ve turned my life around. You can do the same.’”

MEANWHILE, PETTERS WAS starting to spin off new businesses. In 1998, he launched, which peddled discount goods online, and brought Ted Mondale on as executive vice president. Ted’s father, Walter Mondale, the former U.S. vice president and ambassador to Japan, joined the firm’s advisory board and offered Petters entrée to some of his business contacts in Asia, which Redtag used to track down deals on Asian goods.

Just after he founded Redtag, Petters began courting the behemoth institutional investor GE Capital. At one point, he invited a GE Capital executive named Paul Feehan to join him and Ted Mondale in his skybox for a Minnesota Timberwolves game; Redtag’s name was beamed onto the floor with lasers when the home team took the court. Petters eventually landed a $50 million GE Capital credit line for PCI, a quantum leap forward for the company.

There was just one problem: By this point, there was hardly any real business to finance. Most of PCI’s deals were actually phantom transactions backed up by phony purchase orders that Deanna Coleman had crafted. Rather than using money from new investors to buy goods that would then be re-sold to big-box retailers, Petters was using it to pay off those investors whose money was coming due or to fund his increasingly posh lifestyle. In other words, PCI was a classic Ponzi scheme.

If he was going to keep the scam afloat now that GE Capital was on the scene, Petters needed to step up his game. Just after he landed the deal, Petters called his friend Bob White into his office and begged him to forge some documents. “Actually he was in tears a couple times and saying that, you know, ‘I’m ruined if you can’t help me,’” White would later recall. White obliged, and before long Petters brought him on as his in-house document forger, which freed up some of Deanna Coleman’s time to manage PCI’s day-to-day operations.

Petters then reached out to Larry Reynolds, a balding former lawyer approaching 60 with a thick Boston accent, who dressed like a twentysomething player—designer-label jeans with skin-tight t-shirts and thick gold chains draped around his neck. Reynolds had been disbarred early in his career for faking car crashes to cheat insurance companies and was later caught buying a truckload of marijuana from an undercover Drug Enforcement Administration agent. In 1982, he was nabbed again for forging a $2 million check in the name of Scientology founder L. Ron Hubbard—part of a bizarre saga involving the Boston mob and Scientology officials—and was facing a long sentence. So he cut a deal and ended up taking part in an undercover sting that brought down a mafia henchman. By the time Petters met him, Reynolds (a.k.a. Larry Reservitz) was in the witness protection program, because there was a hit out on his life.

Reynolds offered Petters the use of a warehouse he owned in Los Angeles. This proved helpful: At one point, Petters sought financing from GE Capital for a deal involving 10,000 leather jackets that he had supposedly bought. But, before handing over the money, GE wanted to inspect the inventory, so Reynolds hatched a plan. He happened to have a couple thousand leather jackets on hand, and he knew from a previous encounter that the inspector was overweight and had shoddy knees. So he arranged to have about 1,000 jackets hanging on a rack near the door and others scattered around a 20-foot-high loft, which was only accessible with a rolling ladder. When the inspector arrived, he dutifully counted the hanging jackets, then climbed up and down the ladder a couple of times to rummage through boxes, after which he was sweating and panting. As Reynolds predicted, the inspector decided to call it quits before nailing down the number of jackets.

But the ruse could only last so long. In the summer of 2000, PCI fell behind on paying a credit it had taken out, ostensibly to buy goods that would be re-sold to Costco. Petters blamed Costco, saying it had been slow in paying him. A few months later, a GE Capital auditor contacted Costco directly and got some alarming news: The Costco purchase orders Petters had used to get financing were not Costco purchase orders at all, suggesting the deal was a sham. When Feehan, who was then senior vice president at GE Capital, confronted Petters by phone, Petters turned vicious and accused Feehan of sabotaging his relationship with Costco. “It was just a scathing butt-kicking he gave me,” Feehan recalls.

Following the ordeal, Petters promised to pay off the credit immediately. In a desperate bid to buy time, he and his associates wrote out eight checks totaling $38.5 million. Four bounced, after which GE Capital called PCI’s bank and found there weren’t sufficient funds to cover the other checks, either. Eventually, Petters paid GE Capital off with money from new PCI investors—one of whom drew on his own GE Capital credit line. In a final show of brazenness, a few weeks later, Petters approached GE Capital about extending a new line of credit and handed over another pile of forged Costco documents.

AFTER THE GE Capital deal blew up, Petters started relying increasingly on hedge funds to raise money for PCI. Most of the hedge-fund managers were brought in by Frank Vennes. According to the federal government, Vennes also worked with intermediaries to set up a family of hedge funds, which invested almost exclusively in Petters’s company.

At the same time, Vennes continued his fund-raising in evangelical circles. He joined the boards of local evangelical organizations, including Minnesota Teen Challenge—part of a network of faith-based drug treatment programs championed by George W. Bush. (Besides helping people kick addiction, the organization claimed to help them “break the bonds of sorcery and witchcraft.”) Around 2001, the group began sinking millions of dollars into PCI. Vennes also took the helm of a foundation called Fidelis, through which other Christian charities could invest in PCI for a fee, with the proceeds going to fund grand charitable ventures.

Vennes’s charitable work took other forms as well. In 2006, a Vennes-owned entity bought an abandoned hospital in downtown Minneapolis for $3 million and began transforming the sprawling patchwork of brick and concrete into a hub for evangelical ministries and outreach programs. The promotional video for the project, known as Hope Commons, opens with a shot of a construction site, where light is pouring through gleaming plate glass onto freshly hung drywall, then cuts to a homeless man crumpled on the sidewalk next to a cart of tattered plastic bags. “God is at work in regenerating lives in the inner city and regenerating old buildings to do so,” the narrator intones. “God is at work by establishing a beacon of hope in a storm-tossed world.”

At Christmas time, Vennes would throw a giant dinner party at his home on Lake Minnetonka and invite anyone without a place to go—Sudanese refugees, foreign exchange students, the homeless, recovering drug addicts. According to Vennes and other attendees, one year then-Governor Tim Pawlenty showed up, and the Sudanese refugees spontaneously burst into song.

But Vennes wasn’t satisfied with his newfound wealth and social standing. He desperately wanted to clear his name. In 2000, he traveled to Washington, D.C. to begin the process of seeking a presidential pardon for his past crimes. At the Mondale family’s request, formidable Democratic lobbyist John Raffaelli hooked Vennes up with a lawyer, who filed his petition. Raffaelli also lobbied the Clinton administration on Vennes’s behalf. The following year, Vennes and Petters started dumping money into the U.S. Senate campaigns of Walter Mondale and Minnesota Republican Norm Coleman; all told, they and their families donated a total of $37,000 to Coleman and his PACs, plus $50,000 to the Republican National Committee’s state elections committee. The month after he was elected, Coleman sent a letter to “President George W. Bush c/o Mr. Karl Rove,” calling Vennes “an example of successful rehabilitation” and urging that he be pardoned. Coleman also listed other powerful people who backed Vennes’s cause, among them Pawlenty.

Vennes said he was seeking a pardon so he could expand his ministry to those prisons that bar anyone with a criminal record from entering. But there may have been another factor. While his criminal history—and subsequent journey to redemption—were part of his appeal among evangelicals, they were not looked upon kindly in the hedge-fund world. According to recently filed court records, the same year Vennes filed his pardon petition, one of the hedge funds he worked with most closely—a company called Arrowhead Capital Management—was dropped by the bank that handled its accounts because of Vennes’s criminal history. Arrowhead’s auditing firm, kpmg, was also uneasy about Vennes’s criminal past—and the fact that it wasn’t being disclosed to investors. Vennes’s partner at Arrowhead, a former dentist named Jim Fry, only persuaded kpmg to stay on by saying Vennes’s case was “before the Executive Committee of the White House for expungement and complete discharge,” an apparent reference to his pending pardon application. When the pardon failed to materialize right away, Fry told kpmg that Arrowhead had cut ties with Vennes and his firm, Metro Gem. Yet Arrowhead allegedly sought to hide Vennes’s involvement instead. An agenda from an internal Arrowhead meeting in early 2003 includes the following items under the heading “goals”:

1. Eliminate any legal/operational process that puts Metro Gem in the trail of money flow (big investors will do background checks on all parties, thus stopping money flow if felony convictions are discovered)

2. Keep Metro Gem in the mix to obtain fee income on the amount invested

Meanwhile, outsiders helped heap credibility on the operation. Most of the hedge funds that invested in PCI, including Vennes’s, had their financial statements audited by reputable accounting firms. (At one point, Arthur Andersen actually audited PCI directly and gave it passing marks; Petters distributed the report widely—that is, until the accounting giant went down in flames amid the Enron scandal.) In addition, money for the deals supposedly flowed through lock-box accounts with banks, which were meant to ensure no one touched it but suppliers and retailers. “There were many people who were supposed to be standing watch,” says Tim Law, a principal at SSR Capital Partners, a financial services firm that invested in PCI through Vennes’s hedge funds. “So many auditors, so many banks with lock-box arrangements. That they would all sign off on the idea that this was legitimate boggles the mind.”

Those who managed to peel back the veneer found plenty of reason to be wary. According to The Hedge Fund Law Report, one hedge-fund president was approached by Petters about financing a deal and got an uneasy feeling. He fed the warehouse address on the purchase orders Petters had given him into Google Earth and found the property was a vacant lot. Randy Shain, executive vice president of First Advantage Litigation Consulting, which does research for institutional investors, says that between 2002 and 2004 he was hired by four independent hedge funds to investigate PCI. In addition to a trove of litigation—mainly criminal cases and lawsuits from banks and suppliers who claimed Petters hadn’t paid them—he found that Petters’s Dun & Bradstreet profile said he had graduated from college, which suggested he was lying about his background. “I’ve been doing this work since 1987,” Shain told me. “And I’ve never seen anyone who gave off more warning signals.”

NONE OF THIS figured into Petters’s public image. In fact, he was earning a reputation as a community-minded businessman. He sponsored summer basketball programs for high school students and helped put on the annual 4th of July fireworks show at the American Legion Post in his hometown of St. Cloud. He also joined the boards of several charities. Meanwhile, he continued to buy up businesses. In 2002, the once-venerable St. Cloud-based catalogue retailer Fingerhut was on the brink of collapse and thousands of local jobs were on the chopping block. Petters partnered with another Twin Cities businessman to buy it. Within a few years, Fingerhut was turning a profit—or so it seemed. Petters then started buying up other struggling businesses, which only added to his cachet.

While Petters was reveling in the role of corporate tycoon, Deanna Coleman was toiling behind her locked office doors, where she spent her days lying and shuffling forged purchase orders. It was a job she hated. She once wrote Petters an e-mail saying, “After about four hours at work ... I [feel] like a truck ran me over.” Petters repeatedly promised her that he would find a way out—that he would turn the struggling companies around and use the profits to pay off PCI investors.

In reality, virtually all of the companies were hemorrhaging funds and had to be propped up with Ponzi money, meaning PCI was only sinking deeper into debt. Petters’s spending habits didn’t help the situation. As his empire grew, he began jetting around the country in a chartered plane, often with an entourage in tow, and hoarding expensive homes. There was the $5 million lakefront property in Minnesota, the $9 million Mediterranean-style mansion near Palm Beach, and his $1.5 million home in Keystone, Colorado. He also spent days on end gambling and carousing at the posh Bellagio in Las Vegas—all told, he racked up $10 million in gambling losses, mostly on the high-stakes slot machines. Meanwhile, he packed his garage with Mercedes-Benzes and Bentleys, and bought a pair of Tiara yachts.

An incident in early 2004 dampened the revelry. Petters’s 21-year-old son, John, was in Florence, Italy, for spring break. He was making his way back to his hotel with a female friend after a night on the town and decided to stop in a flower garden overlooking the city to snap some photos. As it turns out, the garden was closed. The caretaker and his daughter came out to confront the trespassers, a fight erupted, and John ended up getting stabbed 15 times. He stumbled away and bled to death on a bench. Petters was reportedly devastated. Every morning, he would put ice packs on his eyes to bring down the swelling from crying the night before.

After his son’s death, Petters’s behavior became even more erratic. This past September, I met with David Margolis, who was Petters’s personal assistant from 2004 to 2008 and was often with him around the clock. He dumped a duffel bag of documents and photos on the table and walked me through the sordid specifics of Petters’s private life. After his son’s death, Margolis alleges, Petters grew increasingly obsessed with sex: “His number-one priority was always women. After work, it was usually, go out to dinner, then a club. If he hadn’t found a woman, he would call prostitutes—sometimes two or three.” At one point, Margolis adds, Petters spent more than $130,000 to charter a jet for an airborne sex escapade. Margolis also says Petters packed the corporate internship programs with college girls, so he could take them out on his yacht and try to sleep with them. He was just as ravenous for drugs and alcohol. He pounded Red Bull and Absolut Mandrin (his drink of choice), used Ritalin and cocaine, and popped the prescription downer Klonopin.

Beyond gambling, women, and drugs, Margolis says, Petters didn’t care about much. He would sometimes get so caught up flirting with random women that he’d fail to show up to business meetings. Petters was even more blasé when it came to charities. Often, Margolis says, Petters had him pretend an urgent business matter had come up and pull him out of board meetings for nonprofit groups.

Shortly after his son’s death, Petters launched a foundation in his honor. But even this seemed to be another excuse to indulge. Every year, the foundation threw a $400,000-plus gala. For the first event in 2006, it transformed the downtown Minneapolis Hilton into a mini Bellagio, complete with scantily clad showgirls in cascading feather headdresses and a performance by “Saturday Night Live” alum David Spade. More than 800 people turned out, among them Pawlenty and a large share of the Minnesota congressional delegation, according to Minnesota Monthly.

Petters’s worldly appetites apparently made Vennes uneasy. Sometime in 2004 or 2005, he told his Charis friends and other faith-community investors that he had dissolved his partnership with Petters and gave them their money back. “He said, ‘I saw some things in Petters’s lifestyle that made me nervous,’” recalls one investor. But Petters’s carousing may not have been the only reason Vennes was feeling skittish. According to investigations by the Securities and Exchange Commission, between mid-2004 and mid-2005, the managers of two of PCI’s feeder hedge funds—both of which were brought in by Vennes—learned about Petters’s legal history. They were also informed that their lock-box arrangements with banks were being breached—a major red flag.

PCI was still hemorrhaging money, and Deanna Coleman began to worry that Petters would never find an escape. In the fall of 2004, she wrote Petters a letter chiding him for his reckless spending. “You always promised us that we would find a way out of it. And, yes I believed you,” she wrote. “Now it’s non-stop that I think about going to prison and wondering if I wouldn’t be better off throwing in the towel and just getting it over with. ... I’ve lost trust in you.” Coleman also seemed to be struggling with feelings that she’d been shoved outside of Petters’s inner circle. She wrote that it had “been months since we’ve actually talked about Petters Company or gotten together to go over things.” “It’s as if we only need 4 employees here,” she added, before reeling off the names of several male executives whom Petters favored.

That winter, Petters gave her a $1 million bonus—the first in a string of seven-figure payouts for his fellow plotters. The two also started having an affair. During a ski trip to Colorado, Margolis says, Petters and Coleman had an interlude on a gondola. Petters called Margolis on his cell phone so he could hear it happening.

In the end, Coleman stayed on. The two hedge funds continued to funnel money into PCI without ever disclosing their troublesome findings to investors. As for Vennes, he eventually went back to the investors whose money he had refunded and invited them to invest again. “We had done so well before,” recalls Janet Leck of Charis. “We were all happy to get back in.” By this point, Leck’s husband had died and she had eaten through her savings and was living on Social Security. She mortgaged her home for $190,000 and poured the money into PCI.

Meanwhile, Petters embarked on yet another buying spree. In 2005, he bought the struggling instant-photo giant Polaroid Corporation. The deal brought some sophisticated ventures under Petters’s umbrella, among them a subsidiary known as Zink, which was developing a pocket-sized printer for use with cell phones and cameras, and had some 20 Ph.D.s on staff. “We’re reinventing the magic of instant printed pictures for the twenty-first century,” Petters boasted. The following year, Petters added Sun Country Airlines to his portfolio. Petters Group Worldwide, the holding company for Petters’s legitimate ventures, now had 3,200 employees and claimed to be earning $2.2 billion in revenue—enough to earn it a spot on Forbes magazine’s list of largest privately owned firms. The press began hailing Petters as a corporate turn-around artist—or, as Minnesota Public Radio put it, “the Mr. Fix It of business.”

Petters also continued pouring money into political campaigns. He and his employees were the third-largest donors to the 2006 Senate race of Minnesota Democrat Amy Klobuchar—long the top criminal prosecutor in the Twin Cities—with $75,800 in contributions. This doesn’t count the $20,000 Petters and his live-in girlfriend gave to her joint fundraising committee. Petters also bundled more than $100,000 for Klobuchar—or at least pretended to. According to spreadsheets and bank data Margolis provided, in many cases, Petters simply funneled his own money through other people, an illegal maneuver designed to skirt campaign-contribution limits. Margolis alleges that Petters also did fake bundling for other politicians, including Pawlenty and former Senator Norm Coleman. (Klobuchar’s staff declined to comment on the faux-bundling allegations. Coleman did not respond to an interview request. Pawlenty adviser Brian McClung said, “Governor Pawlenty is not aware of any improper campaign-contribution bundling.”)

PETTERS WAS NOT the only one throwing money at politicians. In the run up to the 2006 election, Vennes and his associates began donating generously to Michele Bachmann, who was making her first run for Congress. He, his family, and his business associates—namely, lawyer Craig Howse, whose firm managed Vennes’s business affairs and lobbied for him in Minnesota, and financial adviser Darrel Amiot, who helped Vennes bring in investors—made two batches of coordinated campaign contributions totaling just under $50,000 to Bachmann and her joint fundraising committee. Vennes also gave $10,000 to the Republican Party of Minnesota.

In December 2007, Bachmann—now a member of Congress—wrote a letter to the Office of the Pardon Attorney (OPA), which two years earlier had recommended that the White House reject Vennes’s clemency petition. Noting that she was “confident of Mr. Vennes’ successful rehabilitation,” she argued that he needed the pardon because his criminal record was a stumbling block “in the area of finance loan documents,” which limited the growth of his business and his charitable giving. “Mr. Vennes is truly a unique man in that he is not asking for a pardon that he may achieve personal success,” she added. “Mr. Vennes is seeking a pardon so that he may be further used to help others. As I know from personal experience, Mr. Vennes has used his business position and success to fund hundreds of non-profit organizations dedicated to helping the neediest in our society.”

According to a former Bush administration official who was privy to the negotiations, around this time both Bachmann and Pawlenty also began lobbying the White House on Vennes’s behalf (an allegation Pawlenty denies). This apparently helped set some gears in motion. In early June 2008, the White House asked the OPA to take a second look at Vennes’s application, after which it began vetting the case anew. On June 30, Vennes, his wife, and his lawyer dumped another $11,200 into Bachmann’s campaign coffers. According to the Bush administration official, Vennes’s pardon application was sent to the White House with a recommendation for approval, where it remained, presumably awaiting end-of-term signature by President Bush.

There’s no reason to think that Bachmann knew Vennes was raising money for a Ponzi scheme. The question is why she chose to take up his cause. House ethics rules state that, while members can alert agency officials if they have “personal knowledge” about such situations, as a general rule they “should not devote official resources to casework for individuals who live outside the district”—as Vennes did.

AS BACHMANN WAS pressing Vennes’s cause, the Ponzi scheme was crumbling. By late 2007, hundreds of millions of dollars of PCI notes were extending beyond their maturity date without being paid. Nevertheless, Petters bought himself a new Bentley and paid his fellow plotters (Coleman, White, and a handful of other functionaries) more than $6 million in bonuses. Meanwhile, as he awaited his pardon, the Justice Department alleges Vennes scrambled to keep the problems at PCI from coming to light. By mid-2008, when his file landed in the White House, hundreds of millions of dollars in PCI notes were going into default, meaning they had extended more than six months beyond their maturity date. According to a federal indictment, Vennes and his hedge-fund partners colluded to cover this up—by, among other things, doctoring the maturity dates and continuing to send out monthly statements claiming the investment was bringing the same steady returns as it had before. All the while, they kept selling PCI to new investors. In the first nine months of 2008, Vennes’s hedge funds allegedly brought in more than $100 million in new money. Rather than turn all these funds over to PCI, the indictment claims that Vennes pocketed $400,000 and used it to pay credit cards, lawyer bills, and $27,000 a month in mortgages.

In a last-ditch bid to bring in new money, Petters began cannibalizing his legitimate companies by selling off their assets or putting them up as collateral, which brought in hundreds of millions of dollars. But even this was not enough to sate the beast. And investors were getting restless. One financial services firm that had invested through the Vennes-run hedge-fund family Palm Beach Funds enlisted auditors to investigate, which touched off a wave of panic inside PCI.

As it turns out, the auditors should have been the least of Petters’s worries. On September 8, 2008, Deanna Coleman walked into the U.S. Attorney’s office in Minneapolis with a stack of papers and spent about an hour and a half huddling with prosecutors and law enforcement agents. On her way back to PCI, Coleman stopped at the parking lot of a Circuit City, where FBI agents handed her two recording devices—a car-alarm-remote keychain and a small square object that she stuffed in her pocket. Coleman then drove back to work and walked into Petters’s office. On the recordings from that day, you can hear her shoes clacking and her clothes rustling against the microphone, then the low, raspy rumble of Petters’s voice. When she enters the office, Petters is on the phone trying to wrangle money out of investors, and his words are jumbled and slurred.

After Petters hangs up, he and Coleman begin discussing Vennes. Petters explains that the investment group that’s seeking the audit is coming to inspect PCI’s books the following day and that “Frank’s trying to set them up, meaning set them up for failure.” He adds that Vennes knows some of the purchase orders are fake and recalls an incident about nine months earlier when Vennes stumbled into Bob White’s office, which was overflowing with forged checks and purchase orders. Mocking Vennes’s high-pitched voice, he notes that Vennes described the scene as “a little paper-manufacturing” plant. “Frank’s so fucking desperate right now,” Petters adds. “Because he’s a convicted felon and he has people’s money. … Little old ladies”—at this point Petters laughs—“that are not accredited investors. Do you know what they would do? ... They would come shoot him and my name would be next to his in the newspaper saying we defrauded all kinds of people.”

A few hours later, Vennes arrives at PCI, along with Palm Beach managers Bruce Prevost and David Harrold, and the group piles into Petters’s office to discuss strategies for holding off the auditors. The men agree that stonewalling is the only option. Otherwise, Petters notes, he would just have to “sit there and lie to them.” After this, the conversation turns to God. The men quote scripture, talk about Bible studies they attended together, and trade stories about miracles they’ve witnessed. Petters, whose words have grown even more garbled, recalls a recent business meeting that ended with him crouched behind a chair praying as a group of hedge-fund managers gathered around for a laying on of hands. Vennes and Prevost tell a story about Vennes and another business associate who, unbeknownst to each other, decided to set aside the exact same day to pray and fast for PCI. “The Holy Spirit of God was orchestrating divinely!” enthuses Prevost, who took part in the fasting. “I was so fired up in the spirit, I had goose bumps!”

The underlying thrust of the conversation seems to be that God has the power to keep PCI alive. “In the natural—let me tell you what. In the natural, we shoulda been outta business six month ago, nine months ago,” Petters says. “I’m human. I get anxiety. ... All these people, all these actions I’ve taken, and all the things I’ve done. But I do believe He will provide for us if we are, ya know, if we stay with His word, and I mean, I’m trying as hard as I ever could to do that.” By the time the meeting is over, the men are so pumped up they’re giving each other high fives.

But the euphoria is short-lived. After the visitors leave, Coleman and Petters meet in private. Coleman takes on a weary tone as she ponders how other hedge-fund managers they work with could believe the deals they’re financing are real. The following day, Petters and Coleman meet again to discuss all the purchase orders that need forging, and Coleman’s exasperation is even more palpable. “I can’t do it anymore,” she grumbles. “I’m telling you that. I can’t.” Petters seems to grasp just how serious she is, because he tells her gently how worried he’s been about the stress she’s under. “I’m sorry—sorry you ever had to meet me,” he adds and breaks down crying. Then he tries to wrap his arms around her. There’s a sudden burst of static as Coleman struggles to get away. “No! You’re not going to do that,” she pleads. “Tom! Absolutely! Don’t!” Coleman would later explain that she resisted because she didn’t want Petters to feel the recording device on her back. But her tone is also that of a woman who has been strung along and betrayed.

Over the next few weeks, the recordings are sprinkled with troubling information about Vennes. At one point, Petters notes that Vennes and his hedge-fund partners have been telling investors they do all kinds of due diligence—including inspecting warehouses. In reality, they “didn’t do any of the things.” At another point, Vennes warns that the operation will “implode” if outside auditors do warehouse checks.

The recordings also offer an unsettling glimpse into Petters’s psyche. He repeatedly promises Coleman and the other plotters that he’ll take the rap if the scam collapses. (“I’ll take every fucking bullet I can take.”) At the same time, he casts around for someone to blame. One minute, he wants White to take the fall. The next, he suggests pinning the blame on his friend Fred Johnson, who is terminally ill. (“Fred’s almost dead anyway.”) Meanwhile, his moods careen wildly. At one point, he falls into a pit of despair and tells Coleman he feels like “going out and, and getting drunk and gamble and die.” A few days later, he’s asking her to come “hop in bed” with him and rambling excitedly about his plans to buy Kodak and Circuit City. Eventually, he and Larry Reynolds hatch an elaborate escape plan—among other things, they plan to hawk Polaroid’s assets to pay PCI investors and have Reynolds pose as an auditor to stave off real scrutiny.

On the second-to-last day of the recordings—September 23, 2008—Petters travels to Las Vegas, checks into the Bellagio, then meets Reynolds over dinner to discuss details of their plan. When Coleman calls Petters early the following morning, he’s talking excitedly about selling Polaroid licenses in India and sounding optimistic that they’ll find a way out of their bind. “We’ll get some good shit happening,” he says. “We’ll have some money coming in, Deanna. Right now it sucks, but we’re going to get it. We are going to get it.” About ten minutes later, the FBI agents knocked on Petters’s door.

WITHIN DAYS OF the raid, details of the investigation began to trickle out, and the staggering scale of the fraud came into focus. At the time, the Petters Ponzi scheme—which, all told, brought in more than $36 billion—was vastly larger than any known Ponzi scheme in U.S. history (although it was soon eclipsed by Bernie Madoff’s).

Politicians began scrambling to distance themselves from the scandal. Klobuchar donated $42,300 of the money Petters had given her to charity. (According to her staff, her campaign was later approached by the court-appointed receiver in Petters’s case—the person who was tasked with recouping his ill-gotten gains—and agreed to return another $80,400.) A week after the raid, Bachmann sent another letter to the OPA saying she “may have too hastily accepted” Vennes’s claims of redemption and was withdrawing her support for his pardon. Bachmann also tried to donate the last $9,200 Vennes had given her to Minnesota Teen Challenge, though the group rejected it as “dirty money.” (It ended up going to a coalition of Christian recovery programs, of which Minnesota Teen Challenge was a member.) Of course, this was just a fraction of the money Vennes and his associates had given to her campaigns. Like many politicians who had benefited from Petters’s and Vennes’s largesse, Bachmann, whose campaign declined comment, never refunded the lion’s share of their contributions.

Petters was arrested in early October 2008 and stood trial the following year. Throughout the ordeal he seemed oddly unfazed; he winked and blew kisses to the crowd in the gallery. Even as prosecutors played the FBI recording of Petters urging White to flee the country, he mouthed, “I love you,” to his daughter, Jenny. His defense attorneys tried to claim that the Ponzi scheme was actually the brainchild of Coleman and other employees, but this argument quickly crumbled. Petters was found guilty on 20 counts of fraud, money laundering, and conspiracy, and sentenced to 50 years in prison. (His attorney declined to comment for this story.)

The fallout from the scam moved through the Twin Cities like a slow-motion tsunami. Businesses went bankrupt. Charities slashed staff and walked away from half-built offices. Among them was Minnesota Teen Challenge, which lost $5.7 million and had to lay off 22 employees. Countless people also lost their homes or watched their retirement savings dry up. The tight-knit evangelical circles in which Vennes moved were among the most devastated. “If only a few had gotten hit, the faith community could have stepped in to help them,” explains Carolyn Anderson, the attorney representing evangelical investors. “But everybody got hit. The safety net was ripped out.”

Vennes, who also declined to be interviewed, has maintained he knew nothing about the fraud at PCI and that he is “emphatically not guilty” of any crime. He has also promised his direct investors that he will sell the assets he has left and pay them back. At least some seem to believe him. All but a few refused to speak to me. One elderly gentleman I reached by phone began to tell his story, but his wife cut him off. “Shut up! Shut up!” she shouted. A mildmannered minister showed up to an interview with talking points that Vennes had approved beforehand. Those who did speak openly had only kind words. Despite nearly losing her home to the Ponzi scheme, Janet Leck talks with Vennes and his wife every other week and travels to Florida every Christmas where she visits the family at their beach home. “It never crossed my mind that Frank would do anything wrong,” Leck says. “I was mad at Petters for duping Frank.”

Vennes has done one thing to earn their faith: He pushed to have his nearly $28 million in seized assets split up among his direct investors. But this is just a sliver of the more than $188 million he earned in PCI commission, according to the Justice Department, and doesn’t come close to making up for their losses. Wynona Laws, the 83-year-old former missionary, has gotten back less than $2,500 of her $60,000 life savings. In return for this pittance, she had to agree not to take further legal action.

The final test of Vennes’s innocence is yet to come. Next February, he will stand trial on 22 counts of fraud and money laundering, among other charges. The details of the case that have trickled out so far are, to say the least, unflattering; but then, Vennes has a history of finding redemption. When FBI agents raided his home back in 2008, they cracked open a basement vault. Amid the buckets of gold coins and stacks of hundred-dollar bills, they found a trove of religious paintings, including one of Lazarus rising from the dead.

Mariah Blake is a special correspondent for The New Republic. Research for this article was supported by a grant from the Investigative Fund of the Nation Institute. This article appeared in the November 17, 2011, issue of the magazine.

Corrections: This article originally stated that Petters and his live-in girlfriend gave $20,000 to Klobuchar’s PAC; in fact, the money was donated to her joint fundraising committee. Similarly, Vennes, his family, and his business associates donated just under $50,000 not to Bachmann and her PAC but to Bachmann and her joint fundraising committee. In addition, due to an editing error, this number was originally misstated as being more than $50,000 instead of just under $50,000. We regret the errors.