Prairie Public Broadcasting

By Todd Melby

ST PAUL, Minnesota (Reuters) - The whistle-blower in the $3.65 billion fraud trial of accused Ponzi schemer Tom Petters testified on Wednesday that she wrote more than $1.2 million in Petters company checks to her boyfriend and brother.

Under cross-examination from Petters' defense attorneys, Deanna Coleman also testified that she had put her boyfriend on the company payroll with a $100,000 a year salary and that Petters was aware of it.

The boyfriend received $300,000 in checks from the company while her brother received $930,000 as Coleman tried to hide income during a divorce.

In addition, defense attorneys presented evidence showing that Coleman spent more than $600,000 of investors' money on gambling during the Consumer Electronics Shows in Las Vegas in 2007 and 2008.

The defense also accused her of lying to outside auditors.

Prosecutors have accused Tom Petters, who ran Petters Worldwide Group, of fraud, money laundering and other crimes for falsely promising investors big returns by financing his company's purchase and sale of electronics goods to retailers.

Coleman has pleaded guilty to conspiracy and has been cooperating with investigators.

The defense played recordings of conversations in which Coleman discussed with Petters employee Robert White how much Tom Petters knew. The recordings were made while Coleman was wearing a recording device after she had gone to the FBI about the fraud.

"I'm pretty sure I know and I can't say for sure if Tom knows," White said. Coleman replied, "Tom knows. He just doesn't want to think about it." To that, White said, "I don't know for sure what Tom knows. He lives in this fantasy world once in a while."

The defense said Coleman continued using her two company-funded $1,600-per-game season tickets for the Minnesota Timberwolves basketball team, even after she had gone to the FBI and the company was in bankruptcy.

The defense pointed out that Coleman had had contact in 1998 and 2003 with the FBI about companies that dealt with Petters.

"Tom promised me over and over again that he would get us out of this and I believed him," Coleman testified.

Coleman, 43, was on the stand for three days before completing her testimony on Wednesday and leaving the courtroom in tears. The prosecution is continuing to call witnesses in the trial, which is expected to take 4 to 6 weeks.

The case is USA v. Petters et al, U.S. District Court, District of Minnesota, No. 08-00364.