February 10, 1999

Portland, Maine

Government witness James Erskine testified Wednesday that he took in $1.8 million from dozens of Sun Life investors in what he said was his role in raising money to fund Catherine Duffy Petit's lawsuit against Key Bank.

Erskine, who has pleaded guilty to mail fraud in exchange for sentencing leniency and his testimony, testified that he played a major role in raising money. He told Assistant U.S. Attorney Paula Silsby that he deposited the money invested into a bank account for his investment company, Capital Placement Services.

In his account to Silsby, the Turner resident said he turned over $538,000 of that sum to Thomas Blackburn, another government witness who has pleaded guilty to felony charges.

Petit co-counsel David Beneman fingered Blackburn, Petit's former attorney, as the architect of the alleged $6.8 million fraud in his opening statement January 25th.

In addition, Erskine claimed he sent an additional $566,000 to co-defendant Paul Richard and $57,000 to Robert Paradis, another government witness who has pleaded guilty to felony charges in connection with the case.

Like they did with Blackburn, the government introduced Erskine's accounting ledger into evidence.

Blackburn, Erskine, Paradis, Donald Shields, Greg O'Halloran and Armand Pelletier all pleaded guilty to charges in connection with the case.

Petit, Richard, Roland Morin and David Hall are charged with 87-counts of bankruptcy fraud, securities fraud, conspiracy, mail fraud and money laundering.

Steven Hall is also charged in the case, but was granted a mistrial last week after his attorney was hospitalized.

Early on into Erskine's testimony, Silsby asked him to explain his agreement with the government, his expectations for leniency, his falsification of his federal tax returns, lies he told an investor about where his funds went and his past drug use.

Erskine testified that he was a ''recreational'' cocaine, marijuana and alcohol user from 1984 to 1995. Blackburn testifed last week that the two had smoked marijuana together in the past.

In addition, Erskine acknowledged that he lied to the first Sun Life investor that he helped solicit funds with when he sent a letter to him in 1996 - soon after the state had launched an investigation into the fund raising - proposing restitution.

Erskine wrote Leonile Carrier, who testified yesterday, that he turned over the $30,000 he invested to Richard. He also told him that Capital Placement Services, his company, received an assignment - a note for the investments - from Richard.

Asked by Silsby whether the statements were true, Erskine said they weren't.

The 1982 Colby graduate and former Lewiston resident met Blackburn and O'Halloran while the three worked at Roberts Hackett, a defunct Auburn investment firm.

In 1994, the year the company closed down, Erskine testified, he opened up Capital Placement Services. Blackburn contacted him and asked if he would like to help solicit investors for Petit's lawsuit. Blackburn testified last week that he helped raise $4.3 million in six years for Petit's lawsuit at her direction.

He also testifed that he committed bankruptcy fraud, devised a scheme to defraud a pension fund, filed false legal bills, filed falsified federal tax returns, misused his attorney trust account and possessed and sold two shotguns while a felon.

Saying that the investors he shepherded from the defunct Roberts Hackett to Capital Services were ''tapped out'' at the time, Erskine said he approached Steven Hall, a Sun Life of Canada insurance agent who he knew for 10 years from prior business, including a Lewiston nightclub called the Boardwalk.

Hall made the introduction to his clients, Erskine testified, and then, Erskine, after giving them a ''pitch'' about Petit's lawsuit, the existence of an escrow account that would back investors money and the terms of the deal, would have the clients write out checks or money orders to Capital Placement Services.

He would issue investors an assignment that was pre-signed by Petit, he said. They were given to him by Blackburn, he told Silsby. Last week Blackburn testified that he never gave out assignments to any of his fund-raising associates.

Erskine said he then forwarded the money to Blackburn in the form of bank drafts or money orders. The commissions he and Steven Hall received were not based on a formula, but were rather ''random,'' he told Silsby.

''It depended on how much Tom Blackburn needed for the week,'' he said. ''It was a random decision, usually made by me.''

In his first deal with a Sun Life investor, Erskine testified that he gave Steven Hall $3,000, kept $7,000 for Capital Placement Services and turned over $20,000 to Blackburn.

''I didn't tell Tom Blackburn I would keep the cash fee,'' he told Silsby in his testimony.

Wearing a gray suit with a white shirt and solid dark tie, Erskine testified for approximately 90 minutes Wednesday afternoon. He told Silsby that after Blackburn had a ''falling out'' with Petit in March, 1995 he took a more active role in soliciting funds for her lawsuit.

Twice during the direct examination Silsby referred to Erskine as ''Mr. Blackburn,'' an obvious fallout of the government's nearly two day-long session with Blackburn last week.

Erskine testified that he first met Petit and Richard at a meeting at the Ramada Inn in Lewiston in 1995 when Blackburn was still involved.

There, he said, Petit talked about the Key Bank lawsuit, her need to raise an additional $800,000 to $1.2 million and issues surrounding her involuntary bankruptcy.

Pressed repeatedly by Silsby about whether the issue of her bankruptcy came up at that meeting, Erskine faltered repeatedly before he told the court that the need to conceal the fund-raising from the bankruptcy trustee was discussed.

Soon after Blackburn departed, Erskine said, Petit told him to send money raised to Richard in the form of bank drafts.

In a meeting at Petit's office in Saco, Erskine testified, a document referring to an escrow account to protect investor's principal was left ''strategically placed'' in front of him, but wasn't shown to him.

Telling Silsby that he saw that it was a bank statement, but didn't see the figure clearly, Erskine said that the sum was between $3 million and $3.5 million. Prosecutors allege that Petit directed her associates to tell investors there was a substantial escrow account established to protect their investments.

The state Attorney General's office had begun an investigation into allegations of fraud involving the Sun Life investors shortly after.

Petit and Richard dreamed up a company called H.E.R. Inc. - short for Hall, Erskine and Richard, Erskine said. The true purpose of the company was to to throw off the Attorney General's investigation by rewriting all the assignments given to investors in Richard's name and putting the funds into the company, he said.

Once again, Silsby repeatedly questioned Erskine about where the funds going into H.E.R. Inc. were destined. Despite Richard's attorney Evan Slavitt's heated objections, Erskine said he didn't know twice before he answered they were going to Petit.

After the jury was released for the day, Slavitt told U.S. District Court Chief Judge D. Brock Hornby that the defense was seeking a motion to prevent the prosecution from going over Eskine's testimony before he resumes his testimony Thursday.

At the beginning of the trial, both sides agreed that witnesses could talk to counsel up until the time they are cross-examined. Saying that Erskine's testimony was ''fragile'' and could be fine-tuned by the prosecution, Slavitt presented his argument and ultimately Judge Hornby said he was denying the motion. He did say that he would allow the defense counsel to examine the issue of whether Erskine met with prosecutors again in their cross-examination, which is expected Thursday.

Two investors who allegedly were defrauded also took the stand Wednesday. Jolene Brissette, a retired Lewiston secretary, told Silsby that she was approached in 1994 by Steven Hall, her Sun Life agent, about investing in the lawsuit.

Hall introduced her to Erskine, a high school classmate of her son, she said, and she decided to invest $60,000 after she was told of the existence of an escrow account to cover her investment. She wrote money orders out to Capital Placement Services and was promised a 12% return in six months and a 20% return after six months.

After the time had elapsed, she met with Petit, who went over the status of the lawsuit and told her about an escrow account, she testified. In the spring of 1996 she invested an additional $25,000 she said and was told by Steven Hall to make money orders payable to Robert Paradis.

After reading of the state's investigation in a Lewiston newspaper, she met with Petit, who told het that the article was full of lies, that the paper was on the "Key Bank side'' and that she was contemplating suing the paper, Brissette told Silsby.

Shortly after, Petit contacted her and asked for a personal loan. She gave her $12,000 she said and was soon paid back $6,300 with promises that the rest was coming shortly. Petit was arrested and imprisoned two months later.

Brissette told Petit co-counsel Jim Lawson in cross-examination that she visited Petit in jail twice. At one of those meetings in the Cumberland County Jail, Brissette said Petit told her that she never received her initial $60,000 investment and could find no record of it.

She was contacted by the FBI in October, 1997, she told Lawson, but did not want to talk to them.

''I felt that they were just trying to get information on Catherine Petit,'' she said. ''I told them we believed in her case.''

In a second meeting with the FBI, she said that the agent conducting the interview told her that Petit had defrauded her and that she had lost her money.

''I told the agent that Catherine Petit had not gone to trial, they were talking like she was guilty and she had not had her day in court,'' Brissette said.

She also told the FBI that she thought others had defrauded her, not Petit or Steven Hall.

William Nason, the co-owner of a Saco construction company, said he invested $30,000 in 1994 after his insurance agent, David Hall, told him of the lawsuit. He made his check out to Capital Placement Services at David Hall's request.

Nason testified that he didn't recall meeting Erskine, but Erskine later testifed that he picked up the check from Nason's partner. Nason said David Hall told him there was a $13 million escrow account to protect investors.

Running into problems meeting his payroll in 1995, Nason told David Hall that he needed $10,000 back from his investment. Hall got him the money, he testified, and then rewrote him a note that reinvested the remaining $20,000 with the promise of a $35,900 return.

Sherrie Timme, a former Petit employee at the Old Orchard Beach Pier who was known as Sherrie Girard at the time, told prosecutors that she worked for Petit for eight years, first in a restaurant on the pier and later in her office collating documents for her lawsuit and paying household bills.

She said that Petit was a friend from Old Orchard Beach High School who she got reaquainted with 10-15 years later. Petit, she testified, ''came to her rescue'' after she got divorced and had a car accident in 1986.

Timme said she took numerous trips with Petit, mainly business-related, and accompanied her to Boston and Florida. In a statement to the FBI in 1998, she said that Petit told her that most of the money coming in over those years went to pay lawyers.

She told prosecutors that she wasn't paid a fixed salary, but rather Petit paid her expenses and gave her money when it was available. She said Petit told her a lawyer had suggested that Girard be listed as a $72,000 debtor on her bankruptcy filing to the court.

Testimony will continue on Thursday. Erskine will be called by prosecutors first to finish his testimony before he faces defense cross-examination.

7:15 pm

Portland, Maine