Petters' associate Deanna Coleman freed after 11 months in prison

Deanna Coleman, the little-known business executive who became a household name in Minnesota's largest fraud case, is a free woman Friday.

Coleman, 45, is the first alumnus of the $3.65 billion Ponzi scheme that brought down former Wayzata businessman Tom Petters, to conclude a prison sentence.

Her release comes just weeks shy of the third anniversary of her trip to the U.S. Attorney's Office in Minneapolis to tell stunned federal prosecutors about the decade-old fraud, triggering a criminal investigation that is still ongoing.

Coleman is scheduled Friday to be removed from a home monitoring device she has been wearing in recent weeks, said her attorney, Allan Caplan.

Before her detention in a Brainerd-area home, Coleman served time in the Benton County jail and in a federal prison camp in Pekin, Ill. where her nearly 11-month incarceration began last October. She got a little more than a month cut off her sentence for good behavior.

She will remain on probation for three years and faces a $3.5 billion court-ordered judgment that accompanied her 366-day prison sentence.

"All she wants now is to let the dust settle and get her life back," Caplan said.

Coleman's assets have been under the control of court-appointed receiver Doug Kelley since October 2008, when the scheme collapsed. Coleman owned homes, cars, jewelry and other valuable items that Kelley has been selling as market conditions allow to raise cash for victims.

The U.S. Attorney's Office got an order in May to take control of $3.5 million that the receiver obtained from her bank account and investment portfolio. It will be put into a victims' fund.

Coleman will now enter into an arrangement with the government in which she will make regular payments in an attempt to pay off part of the $3.5 billion debt she owes to victims of the crime.

Former federal prosecutor Bill Michael, who co-chairs the white collar criminal practice group at Dorsey & Whitney, said Coleman's payments will depend on her income. He said failure to live up to a payment schedule can result in more prison time.

"She's going to have a tough time getting a good job just to meet her own needs," Michael said. "At the end of the day, say she's making $50,000, after taxes, rent, food and health insurance she won't have a lot left over."

Coleman has a college degree in business administration. Caplan thinks she'll find work. "She's a sharp, efficient person," he said.

He said she is not giving interviews.

Key witness at trial

Coleman was the key witness for the government against Petters, who is serving a 50-year sentence for masterminding the scheme.

Among Coleman's contributions to the investigation was her willingness to be wired to record conversations among Petters and his small circle of lieutenants in the operation.

The tapes, entered as evidence during Petters' trial, caught the participants acknowledging the fraud as they desperately sought new investors to prop it up.

The Ponzi scheme centered on the fictional purchase and sale of consumer electronic products to big-box retailers. Investors were told they could earn double-digit returns from the sale of the goods -- except no goods existed and money from new investors was used to pay back old investors plus interest.

Coleman's whistleblowing also led to guilty pleas from four other Petters' associates and five hedge-fund managers who did business with Petters. Two more fund managers are awaiting trial.

Of the inner core of the Ponzi participants, Bob White is serving a five-year sentence and will be the next one released. Michael Catain is in prison for 7 1/2 years and Larry Reynolds is serving 10 years and 10 months.

"She was quite courageous," Caplan said of Coleman's decision to become a government witness. The fraud "bothered her constantly. She was a whistleblower who brought something to the government when she had lots of options. She could have gone to any one of 50 countries that don't have extradition agreements with the U.S."

Michael, a former assistant U.S. Attorney, views the case differently. "She was drowning and there was one lifeline --to go in and talk quickly," Michael said.

David Phelps • 612-673-7269