March 8, 1998
The first tip that something might be amiss in the financial dealings of Spokane businessman John Earl Petersen was an inordinately large number of what are known in the banking world as currency transaction reports.
CTRs for short. The reports get filed when an account shows a transaction of more than $10,000 involving cash deposits, withdrawals or cashier check purchases.
Between 1989 and late 1996, Petersen, the central figure in the swindling scheme that cost the Mountain Bank of Whitefish $10.5 million, had more than $2.9 million in such transactions. What struck Internal Revenue Service Agent David Benscoter was that the 45-year-old Petersen, who described himself to the IRS as a middleman on real-estate deals, seemed to have very little legitimate income.
Benscoter, according to an 62-page affidavit he filed in November 1996 before searching Petersen's home, office, garage and vehicle, had looked hard for any such evidence. The IRS checked his bank records. Benscoter and other agents surveilled Petersen. They set up cameras to watch his comings and goings. On more than 50 occasions, federal agents prowled through Petersen's trash.
What they found- and often what they didn't find- convinced them Petersen wasn't, as he claimed, running a real estate business.
Instead, they came to believe that Petersen was running a wide-ranging criminal scheme that involved, at the minimum, income tax fraud.
"From all the records I have reviewed and all the evidence gathered I have not seen one document that leads me to believe his money comes from legal sources."
Early on, Benscoter appeared to believe that Petersen might be laundering money from a drug operation. His affidavit, recently unsealed in U.S. District Court in Spokane, outlines the early days of the investigation that eventually took down the Mountain Bank's top man, three vice presidents and, finally led to the charges against Petersen.
Beginning in 1988, John Petersen quit filing income tax statements. As of November 1996, Petersen had an appeal case going with the IRS for the tax years 1988 through 1991, but he also hadn't filed returns for 1992 through 1995. By itself, the tax situation drew the attention of federal authorities. In fact, Petersen is still under audit for the recent tax years.
By the time Benscoter was readying his affidavit in Spokane, he and other agents had learned much about Petersen.
They'd tracked down his vehicles: a 1991 Lincoln, a 1990 Porsche, a 1985 AstonMartin, a 1991 Camaro, a 1993 Jeep, a 1996 Dodge pickup and a 1996 porsche. He appeared to own all free and clear.
They'd found a boat, a 28-foot Baja, docked on Lake Coeur d'Alene. They had evidence he owned a plane, an Aero Commander.
They had tracked down jewelry purchases of $23,820 from 1991 to 1995, and had learned that Petersen had more than $144,000 in insurance on jewelry.
In Petersen's trash, agents found that Petersen had spent lavishly on flowers for his home, office, and others. From 1992 to 1995, Petersen spent nearly $50,000 with florists. He bought more than $18,000 in stereo and electronics equipment in 1994-95.
Petersen also spent plenty of time in Las Vegas.
"From 1986 through 1988, Petersen ran up unpaid bills at several Las Vegas casinos, including $8,000 at the Hilton, $20,000 at the Frontier Hotel, $30,000 at Caesar's Palace and $20,000 at the golden nugget in New Jersey," Benscoter wrote.
In July 1988, Petersen called Caesar's Palace and told employees there that he owed more than $100,000 to vegas casinos and might have to declare bankruptcy. He told the Hilton the same thing. By 1993, however, Petersen was returning to Vegas and staying at the Desert Inn Sheraton.
"Records from the Desrt Inn Sheraton indicate that Petersen is considered a large enough gambler to have his room and meals 'comped,'" Benscoter wrote.
Petersen's financial dealings ran through a host of companies, including John E. Canada Investment and Intercontinental Holdings LLC. What Benscoter never found in Peterson's trash was evidence that any of the companies ever did any legitimate business.
"I believe all of these companies to be shell companies, that is, companies in name only that do not do real business," Benscoter wrote.
In contrast to Petersen's trash, agents found lots of evidence of real estate deals in the trash thrown out by another real estate company, Nicholson-Wood Reality, in Petersen's Spokane office building.
"After conducting numerous trash pickup's at Petersen's office, this agent is knowledgeable not only about what is in Petersen's garbage but also what is not in his garbage," Benscoter wrote.
Many of Benscoter's discoveries proved only that Petersen, through whatever means, was wealthy. But his investigations yielded other evidence indicating that Petersen might be running a big-time scam.
Petersen's trash routinely contained documents noting that payments of large sums of money were coming Petersen's way. For example, Benscoter found a fax dated Nov.3, 1994, purporting to be from Seafirst Bank in Seattle. The fax stated that $5,8 million beloninging to Petersen was to be released to him in five days. When Benscoter contacted Seafirst, officials there said the fax was counterfeit.
On Feb. 16, 1995, agents found a photocopy of a cashier's check from U.S. Bank for $6,363,512.72. U.S. Bank officials told Benscoter that the check had been doctored.
"I have recovered numerous phony cashier checks and letters from Petersen's trash which attempt to explain that he has a legitimate source of income," wrote Benscoter.
After the investigation into the Mountain Bank case became public, court records filed by prosecutors alleged that Petersen often used forged documents to convince then-bank president Werner "Buster" Schreiber that he had millions of dollars in Canadian accounts. Schreiber's attorney, Ron MacDonald, also said that Petersen also used altered subpoenas to suggest to Schreiber that authorities might be probing his accounts.
Benscoter and other agents eventually searched Petersen's apartment, offices, garages and vehicles, and information found there led, at least in part, to Petersen's Feb.20 arrest on a 12-count indictment alleging conspiracy, bank fraud and money laundering.
Petersen also was undone by Schreiber and three other Mountain Bank officials, all of whom were indicted and cooperated with federal authorities. Those four outlined a scheme of manipulating the Mountain Bank's transit account, where it kept track of its dealings with other banks.
According to court records, Petersen wrote over dozens of hot checks on his Mountain Bank accounts and accounts at other banks, checks Mountain Bank honored even though there was no money to cover them.
In Petersen's favor, his Missoula attorney, John Smith said last week that Benscoter may have exaggerated somewhat in his portrayal of Petersen as an organized crime figur. That characterization came at Petersen's Feb. 21 court hearing in Spokane, where a U.S. magistrate ordered him held until he could appear in Missoula.
