February 8, 1999

Portland, Maine

The 87-count federal fraud trial against Catherine Duffy Petit and three other defendants moved into the third week of deliberations Monday as federal prosecutors called four investors and a bankruptcy trustee attorney in the alleged $6.8 million fraud.

The case hinges on prosecutor's accusations that Petit orchestrated a scam to raise money from 125 Maine investors to back her 14-year lawsuit against Key Bank. Co-defendants Paul Richard, Roland Morin and David Hall are accused of being links in the chain of the fraud. A fifth defendant, Steven Hall, was granted a mistrial last week after his attorney was hospitalized for an illness. He could be tried at a later date.

Defense attorneys have pinpointed former Auburn lawyer Thomas Blackburn as the real cuplrit in the case. Blackburn, they say, used Petit's name and her lawsuit to defraud investors over a six-year period.

In his testimony last week, Blackburn admitted to committing a number of felonies for which he isn't being charged, but stuck to his claim that he was working at Petit's direction.

Like James Erskine, Donald Shields, Greg O'Halloran, Robert Paradis and Armand Pelletier, Blackburn is testifying for the prosecution in exchange for leniency. All pleaded guilty to felony charges in connection with the case.

Monday, Judge D. Brock Hornby told jurors that one member of the jury had been excused from the proceedings, but did not clarify why.

Soon after, investors Karl Gerstenberger, Rosetta Celetano, Leonile Carrier and Richard Kendall were called to the witness stand.

Gerstenberger and Celetano testified that they wrote out checks to Blackburn after hearing of the details of Petit's suit against Key Bank. Carrier wrote his check out to Erskine's investment company, while Kendall wrote out his to defendant Morin's.

Carrier, a part-timer courier from Lewiston, testified that he invested $30,000 at the urging of Steven Hall, his one time Sun Life insurance agent.

Hall and Erskine, who was introduced to Carrier at the second meeting between the men, told him he would receive $35,000 in return from two weeks to six months after the investment. Most investors have testified that they were told they would double their money in six months.

Carrier cashed in his Sun Life annuity and wrote a check out to Capital Placement Services, an investment company owned by Erskine. The company's name came up repeatedly last week when Petit's defense cross-examined Blackburn, who testified that he borrowed money from it in funding his own company, Prime Capital.

The two, along with government witness O'Halloran, were colleagues together at Roberts Hackett, a now defunct investment firm

Erskine gave Carrier a note that was pre-signed with Petit's name and also was witnessed by Michelle Morin, Blackburn's former secretary.

''Was Ms. Morin there at the time that Erskine gave you the note?'' Petit attorney David Beneman asked Carrier.

''No sir,'' the 69-year old witness responded.

Blackburn testified last week that Petit gave him stacks of notes - or agreements - which she pre-signed. He never, he said, gave them to anyone else.

Carrier said that he pressured Steven Hall after the six-month period elapsed and eventually he received a check for $3,000 from Capital Placement Services. Over the ensuing months, he received an additional $2,500 from Hall and $1500 from H.E.R Inc.

In his opening statement, Richard's attorney, Evan Slavitt, said H.E.R. was a company formed by Hall, Erskine and Richard that was intended to help pay some of the investors back once they discovered the extent of fraud perpetrated by Blackburn. In 1995, the state Attorney General's office issued a cease and desist order to the company and seized its assets

Carrier hired an attorney, who sent a letter to Capital Placements and Erskine demanding his repayment. Eventually, Sun Life reimbursed Carrier some money, but not all he told the court. The Canadian company agreed with the state to reimburse its customers who invested in the lawsuit $2.3 million.

Both Gerstenberger and Celentano are residents of the Camden area who were introduced to the investment by area residents.

Gerstenberger told the court that Downeast Magazine publisher Alan Fernald told him about the lawsuit and the investment opportunity in December, 1993. Both Fernald and Dr. Gordon Paine, a Rockport physician, have been purported by other government witnesses as having been instrumental in raising investors in the Camden area.

Gerstenberger, a retired health-care consultant, wrote out a check for $100,00 to Blackburn, who had been acting as Petit's attorney while he was raising funds from 1989 to 1995.

Gerstenberger testified that Fernald showed him letters from a Boston law firm that was handling Petit's 1990 settlement of $3.9 million with the Portland law firm of Bernstein, Shur, Sawyer & Nelson saying there was an escrow account. Fernald was faxed those letters by Blackburn.

As it became clear that his investment would not materialize as quickly as he was told, Gerstenberger met a number of times over the ensuing months and years at Fernald's house, he said, with other area investors.

At one of these meetings in 1997, Gerstenberger told Petit co-counsel Jim Lawson in his cross-examination, he heard allegations that Blackburn had absconded with some money. By this time, Blackburn was almost 18 months removed from his fund-raising activities, the court heard last week.

He quit, Blackburn said, after a falling out with Petit. Petit's defense team has said that rumors of Blackburn's activities were starting to filter back to her and she then attempted to verify some of these rumors.

Celentano, a Camden psychotherapist, met Blackburn through Paine and then wrote out as check to him for $98,000 after meeting him at an Augusta restaurant. The money was invested through her children's trust accounts and she was acting as trustee.

She too wasn't repaid, and eventually, after reading about the state AG's civil lawsuit against H.E.R. Inc. she contacted Paine again.

He met her in a Camden deli with Greg O'Halloran, another government witness who has pleaded guilty to felony charges in connection with the case. O'Halloran, Celentano said, tried to convince her to invest more money and told her her chances of recovering her original investment would increase if she did. She decided not to, she told Assistant U.S. Paula Silsby.

Eventually, she met at Fernald's house with other area investors. There, Celentano said, Petit advised them to talk to state investigators, but reminded them that they hadn't done anything wrong.

She too overheard talk that Blackburn had taken money illegally and when she later spoke to Petit by phone, she said that Petit told her that Blackburn had been stealing money in her name and she would do all she could to get it back and honor her moral obligation.

Kendall, a retired Auburn business owner, told the court that he met with Roland Morin through his company, RAM Investments. He had done three investments with Morin before, he said, he decided to invest in the Petit law suit at Morin's urging.

In 1993, he wrote out a $25,000 check to RAM Investments and received an agreement that Petit would repay him $50,000. Eventually, he told Silsby, the six-month period elapsed, and after having three or more conversations with Morin about the suit, he was referred to Blackburn.

Kendall also started to do some investigating, he testified and he found out that Petit's law suit against the law firm had been settled, contrary to his belief. He also wrote to the Boston law firm asking about the escrow account he was told was backing his investment, but they didn't reply.

Meanwhile, Blackburn rewrote Kendall an assignment for $60,000, which accounted for the accrued interest. In due time, after no more contact from Blackburn, he met with Richard, who told him that he would purchase the note for $37,000. Richard, his attorney has pointed out, was by that time trying to repair the damage that Blackburn and his associates had done.

The deal never went through. Kendall sued Blackburn and won a $74,000 judgement in court.

Joseph Higgins, a Massachusetts native who rented the law firm of Caron& Sullivan an Ogunquit condominium, was also called to testify. He told the court that he met with Petit in Boston in 1991 after she responded to his ad in the Boston Globe. He rented the condo out to co-leasors Petit and Caron&Sullivan at the rate of approximately $15,000 annually until 1997.

On cross-examination, Higgins told Lawson that Petit told him that it would be used by her legal team in her preparation to bring her marathon Key Bank civil suit to court. Ron Caron, a Biddeford attorney, is her counsel of record in that suit.

Towards the end of proceedings, the government called Gerard Kelley, an attorney for the U.S. Trustee's Office. Kelley oversaw legal matters related to the trustee's handling of Petit's 1993 involuntary bankruptcy. The government called the tape of a 1994 bankruptcy hearing into evidence. The continuation of that tape will kick off proceedings on Tuesday.

Portland, Maine

4:30 p.m.