February 2, 1999

Portland, Maine

Prosecution witness Thomas Blackburn resumed his testimony Tuesday in the 87-count federal trial of Catherine Duffy Petit and three other defendants, laying out the chronology of events that led to him wearing a wiretap and covertly taping three conversations with Petit before her arrest in October, 1997.

Blackburn, Petit's former lawyer, has pleaded guilty to bankruptcy fraud and is testifying for the prosecution in exchange for a reduction in his sentence. He was named by defense lawyers last week as the true ringleader in what the U.S. Attorney's office has characterized as Maine's largest investment fraud.

Before testimony - which resumed after an unplanned break of six days due to U.S. District Court Judge D. Brock Hornby's attendance at the funeral of a Maine Supreme Judicial Court justice last week and the illness Monday of a defendant's lawyer - jurors were told that Steven Hall was being granted a mistrial and would be severed from the case.

Hall's lawyer, Richard Emerson, became ill Monday morning and was hospitalized. He is too ill to continue and Hall's interim attorney asked the judge for a mistrial for his client.

A former Sun Life insurance agent who was named by the government as a co-conspirator in the alleged $6.8 million fraud, Hall was excused by Judge Hornby and told that he would have to seek new counsel and would be granted a new trial if prosecutors decide to pursue one.

Defendants Petit, Paul Richard, Roland Morin and David Hall, Steven's brother, listened on as Blackburn pressed on with his allegation that Petit was the mastermind behind an insatiable drive to raise money to fund her 14-year lawsuit against Key Bank.

Saying that he assisted in raising over $4.2 million from investors from 1989 to 1995, Blackburn was led year by year through an accounting by lead prosecutor Donald Clark.

Referring to exhibits introduced as evidence by Clark, Petit's former lawyer, said that by 1995, the year that investors who wrote out checks to Blackburn have testified that he ''washed his hands'' of them, he was close to suicide.

''It was horrible, the worst time of my life,'' he said. ''I contemplated suicide and thought about doing some awful things.''

This, he said, was soon after he returned from a failed attempt to entice the president of a Las Vegas produce company to invest $1.5 million in Petit's lawsuit. Accompanied by Petit, Blackburn testified, he flew out to Las Vegas in the first of three attempts to lure out-of-state investors.

Blackburn also placed an ad in the Miami Herald in early 1995 seeking investors to sink in $1 million to $2 million in exchange for double the profits. He arranged an answering service in Miami to take enquiries, he testified. Ultimately, he told Clark, the bid was unsuccessful.

Unlike last Wednesday when he first took the stand, Blackburn looked repeatedly at the jury when he answered Clark's questions. Dressed in a somber charcoal suit, the former attorney, who testified at a hearing in June that he had resigned his license to practice law in Maine, told jurors of the events that led to a series of meetings with Petit in the spring of 1997 when he was wired by the FBI.

After the failed Las Vegas trip, Blackburn testified that he flew to Buffalo, New York to meet with a prospective investor. He convinced the investor to inject $1.5 million, he said, but the deal unravelled around the issue of an escrow account and Blackburn's $ 1 million in malpractice insurance.

Throughout his testimony, Blackburn has testified that Petit told him that there was an escrow account of $2.5 million to protect investor's principal investments. On three ocassions Tuesday, he said Petit sent him memos to give to prospective investors telling of the escrow account.

The Buffalo investor, he claimed, wanted an opinion letter from Blackburn that it existed and an assurance from Blackburn that his malpractice claim would cover $2 million. Petit, he said, raged at this when he told her and then co-defendant Paul Richard took the phone and told him, ''I'm the lawnmower, you're the lawn.''

This exchange, he told Clark, precipitated a falling out with Petit and to his ''terminating the relationship.''

Well into the afternoon, the jury heard the first 40 minutes of Blackburn's taped conversations.

Sitting in a dimmed courtroom with headphones on, jurors listened to the two talk in a car in the parking lot of Verrillo's Restaurant in Portland.

There, Petit broke down in tears when she recounted how she discovered her former attorney, Richard Poulos, had gone to Assistant U.S. Attorney Paula Silsby with information he claimed was damaging to Petit. She also recounted how he called the Lewiston Sun Journal to leak information related to the state Attorney General's civil case against the defendants.

Jurors also hear the first real mention of Donald Shields. A government witness who has pleaded guilty to counts of money laundering and mail fraud, Shields' participation in raising money was brought up by Petit on the tapes.

She appeared to be showing Blackburn copies of documents that were given to her by a Laurence and Sylvia Paine, a Bangor couple who she went to meet when she heard they had given money to Blackburn.

''Sylvia Paine said, 'They played with you haven't they?' I said, 'yes they did.' I was crying my eyes out,'' Petit told Blackburn.

After Petit said she suspected that Shields forged Blackburn's name on documents he gave to the couple, Blackburn agreed, expressing indignation that his co-conspirator would do that.

Shields was indicted last October in Lincoln County on five felony counts of forgery unrelated to the Petit case. He has yet to be tried in that case.

On the tape, Petit also recounts how Shields blamed Blackburn for the misappropriation of $90,000 he said he gave to Blackburn to give to Petit. Petit also tells Blackburn that she was shocked that Downeast Magazine publisher Alan Fernald had given money to Shields and how he discovered that Shields had given him forged documents.

Fernald and Camden doctor, Gordon Paine, were mentioned by Blackburn in his testimony as large investors in Petit's Key Bank litigation. Both, he said, solicited other area investors.

At one time, Blackburn testified, he talked to Paine about investing the pension funds of his medical practice, Surgical Associates. He said Paine suggested that he be assigned a mortgage to the Old Ocean Beach Pier, Petit's former business and the original focus of her suit against Key Bank.

Petit agreed he testified, and a mortgage was assigned to Shields' company, Shelby Mortgage. Paine, Shields and co-defendant Morin all received $333,000 assignments for the transactions, he said. The deal was hammered out in Paine's office while Petit sat outside in her car, Blackburn said.

''She typically did not want to discuss money, so she sat in the car,'' he told the court.

Some time after that, he said, both he and Paine received agreements drawn up between Petit, her companies and the two that promised them a minimum of $700,000 apiece and a maximum of 50% of any recovery of damages in the Key Bank case up to $17 million, depending on the success of their fund raising efforts.

Blackburn said that by 1994, he had kept between $150,000 and $200,000 for himself for his efforts over the five-year span. In his accounting, he told Clark, he characterized it as a loan in order to avoid paying taxes on it.

Petit's co-counsel, David Beneman and Jim Lawson, were relegated to intermittent objections to Clark's questioning Tuesday.

Last Monday, in his opening remarks, Beneman said that Blackburn was the ringleader of a fraud that capitalized on Petit's name and her lawsuit to defraud investors - many of them elderly Sun Life customers who cashed in their annuities.

They are expected to get their chance to cross-examine Blackburn Wednesday by noon, after the jury hears another three plus hours of taped conversations between Petit and Blackburn.

Also expected to cross-examine Blackburn is Evan Slavitt, Paul Richard's attorney. Blackburn testified Tuesday that Richard was instrumental in helping to control the fund-raising efforts and he also tried to manipulate her bankruptcy committee by claiming that he was the obligator of the assignments, relieving Petit of responsibility.

Co-defendant Roland Morin heard Blackburn testify that he introduced a number of investors to him, but that he had dropped out by sometime in 1994. He received assignments for his efforts, Blackburn testified, often times with Shields.

The courtroom gallery was crowded Tuesday, with Petit's family and supporters in their customary seats. In addition to other members in the gallery, a represenative of Pierce Atwood, Key Bank's law firm, sat taking notes.

Key Bank is also being represented at York County Superior Court, where their 10-year-old lawsuit against Pepperell Trust was scheduled to open Monday. That suit relates to the bank's contention that it was not granted a release from potential litigation from Petit by Pepperell and a Portland law firm back when she borrowed money from the banks to finance her operation of the Old Orchard Beach Pier.

Late Monday, the two sides were said by a court clerk to be in settlement discussions.

Feb 2, 1999

6:55 p.m.