When jury selection starts today in the Tom Petters trial in St. Paul, a cross-section of Minnesotans will be asked whether they believe the good-looking entrepreneur standing in front of them, a guy who once owned Polaroid and an airline and gave millions to charity, could knowingly cheat friends and acquaintances out of $3 billion for more than a decade.
For most honest people, it's a difficult concept to grasp. Because inside us are mechanisms that punish us when we do something illegal or immoral. Call it a conscience, or guilt. Call it a soul.
The jury in the Petters trial will not likely be trying to determine if a Ponzi scheme occurred in this case. Several people have already pleaded guilty, and some close to Petters have told me they think a massive crime was committed. They just think that Petters was another victim, a dupe of con artists or mobsters.
So a jury will have to look at those involved and decide which of the people in the courtroom masterminded the largest financial fraud in state history. They will likely wonder how someone could start such a scam, and keep it going without detection or, apparently, guilt.
I asked two people with different takes on the subject to explain how a colossal fraud continues, not so much mechanically as psychologically.
Barry Minkow was a lauded young entrepreneur during the 1980s who was actually running a Ponzi scheme and served seven years in prison. His company, ZZZZ Best, appeared to be a successful carpet-cleaning company. But it collapsed in 1987, costing investors $100 million. One of those involved in his crime was Jack Catain, a reputed mobster and, coincidentally, father of Michael Catain, who has pleaded guilty in the Petters case.
"First, Ponzi scheme perpetrators rarely start out to commit fraud, but are faced with economic pressure or the unknown variable [like a severe downturn in the economy] and then use the scheme as a means to a temporary fix," said Minkow, who now does fraud consulting and testifies as an expert. "Most of us have 'cures' we are looking forward to that will clean up the Ponzi scheme so that we can go legit [which often leads to compulsive gambling].
"At ZZZZ Best, I was trying to survive until my shares in the company could go to free-trading shares and then pay the mob and the Ponzi. Unfortunately, we end up only lying to ourselves because faced with economic pressure we would always go back to what worked -- the Ponzi -- when the next unknown variable presented itself."