February 16, 1999

Portland, Maine

Tuesday, the prosecution called eight Sun Life customers to the stand who invested money in 1995 to finance what they were told would be Catherine Duffy Petit's lawsuit against Key Bank.

All of the eight, who were Sun Life of Canada insurance clients of co-defendant David Hall and his brother Steven, testified that they wrote out checks to Capital Placement Services, the company owned by government witness James Erskine.

Erskine testified last week that he raised $1.8 million for Petit's lawsuit in an 18-month period over 1994 and 1995. He told defense lawyers that he kept $446,000 of that for himself. He originally told prosecutors that he only kept $93,000 in an effort "to minimize his involvement."

Erskine has pleaded guilty to one count of bankruptcy fraud and agreed to testify for the prosecution in exchange for sentencing leniency.

He also acknowledged lying to the FBI and providing a false accounting to the government of the disbursement of the money.

In addition, Erskine admitted to defrauding an elderly South Paris woman of $13,000 by forging her name on dividend checks. That was unrelated to the Petit lawsuit. He also owes her an additional $100,000 for investments she made unrelated to the Petit lawsuit.

The Androscoggin County Sheriff's Department said last week that they were investigating the allegations, which was brought to their attention by the woman in December. Last Friday, a deputy in the department said he was unaware of Erskine's confession in federal court.

Petit, Paul Richard, David Hall and Roland Morin stand accused of 87-counts of conspiracy, bankruptcy fraud, money laundering, securities fraud and mail fraud.

A fifth defendant, Steven Hall, was granted a mistrial earlier after his attorney became ill and was hospitalized. He could be tried at a later date.

Erskine, Thomas Blackburn, Donald Shields, Armand Pelletier, Greg O'Halloran and Robert Paradis have pleaded guilty to felony charges in the case. Blackburn, who was labelled the ringleader of the fraud by Petit co-counsel David Beneman in his opening statments, testified earlier. It's not clear how many of the other witnesses will testify.

As the trial entered its fourth week, prosecutors called the Sun Life investors, most of who are elderly retirees, to press their case that they and nearly 120 other investors were victims of the defendants in the alleged $6.8 million fraud.

Though busy contesting exhibits entered into evidence by the court, defense attorneys did little cross-examination Tuesday.

Sun Life of Canada reached a settlement with the state of Maine in its civil case against the defendants in 1997 and agreed to pay $2.2 million. They did not acknowledge any wrongdoing. Both Halls were fired from their positions as agents for the company.

Hall came to his house with Erskine. There, like virtually all the Sun Life customers, he was promised a 20% return in six-months and was told the investment was backed by an escrow account.

Cloutier told Silsby that he invested $50,000 and then waited as the six-month period elapsed and he had not received any money. Eventually Steven Hall gave him $3,000 for a partial interest payment, he said.

The check was drawn on H.E.R. Inc., a company that Richard's lawyer said was set up to try to reimburse investors as the details of the fraud became evident. The prosecution alleges that H.E.R. - which stands for Steven Hall, Erskine and Richard - was set up to continue the flow of money to Petit and avoid the scrutiny of the bankruptcy court.

Petit was placed into involuntary bankruptcy in 1993. Her corporations - CDP Inc., Old Orchard Ocean Pier Co. and Whiteway Amusements - were not and are still solvent. They, like Petit personally, are litigants in the 14-year-old civil lawsuit against Key Bank.

Eventually, Cloutier testified, he met with Petit and Steven Hall and was told the lawsuit was progressing. When asked by Silsby whether he was told that the lawsuit had been dismissed, Cloutier said he hadn't.

Tuesday, as they have in the past direct examination of witnesses, the prosecutors pressed home that point repeatedly. Petit's suit against the bank was summarily dismissed by a York County Superior Court in May, 1995. However, it was on appeal and ultimately the dismissal was overturned by the Maine Supreme Judicial Court in December, 1996.

Cloutier received an additional $1,000 from Steven Hall, but was never repaid any more from the participants, he testified.

Richard Beaudoin of Standish, a maintenance supervisor for the South Portland School system invested $8,000 for the lawsuit in January, 1995 after Steven Hall, his insurance agent, suggested it. Beaudoin's wife had died the previous month and he received $12,000 from her policy,

He met with Steven Hall and Erskine and handed over the money in cash he told Assistant U.S. Attorney Donald Clark. Beaudoin said he signed a confidentiality agreement and was given an agreement that was filled in by Erskine.

He was never repaid any money by Hall or Erskine, Beaudoin said.

Leroy Morton, a retired paper mill worker from Gorham, said he invested in 1995 after he was approached by David Hall, his insurance agent. Hall came with Erskine, he testified and he eventually wrote out a $25,000 check payable to Capital Placement Services. He was promised a 14% return in six months and handed a pre-signed agreement with Petit's signature.

Virtually all of the government's witnesses have testified through the length of the trial that they were given agreements - or notes - that were pre-signed with Petit's signature. Blackburn testified that she gave him stacks of the agreements she signed to pass out to investors.

Beneman suggested in his cross-examination of Blackburn that the documents were photocopied and her signature was pasted in.

Blackburn testified that he raised $4.3 million over a six-year span for Petit's lawsuit. He kept only $200,000, he said.

The former Auburn lawyer also testified that he helped devise a scheme to defraud a pension fund, filed false legal bills, filed fraudulent federal tax returns for four years, supplied false accounting to the prosecution, kept thousands of dollars he told prosecutors went to Petit and violated federal laws by possessing and selling two shotguns as a convicted felon.

Ultimately, Morton received a new agreement signed by Richard on behalf of H.E.R. Inc. He made a second investment of $42,700 which was signed by Steven Hall and Richard. He never received any money from the participants, he told Clark.

Albert Pratt of Waterville told Clark that he invested in the lawsuit on the advice of Steven Hall, his insurance agent. He met with Steven Hall, Erskine and Blackburn at Blackburn's office and wrote out a check payable to Capital Placement Services for $50,000 after being told that his investment would be protected by an escrow account of $1 million. In 1996, after the six-month period had elapsed, he met with Steven Hall and Petit at the Ramada Inn in Lewiston, where he was told that the lawsuit was progressing and was asked for an additional investment.

Pratt told Clark that Petit said the investment would be covered by the collateral of her house in Old Orchard Beach. He wrote out a check for $33,000 made payable to Robert Paradis, Petit's employee at the time. This he did at Petit's direction, he said.

Pratt testified that he received a new agreement signed by Richard, but that he never received any money back from the defendants or Erskine, he said.

John Hunter, a retired dairy farmer from Madawaska said that David Hall, his insurance agent, introduced him to the investment in 1994 and that he wrote out a check to Capital Placement Services, Erskine's company, at Hall's direction. He didn't receive any return paperwork initially, Hunter told Silsby and pressed Hall until he received a photocopy.

Hunter testified that he wasn't told about a lawsuit at the time of his investment. His agreement said he would be paid back in one year. He received a check for $2800 from Hall in late 1995, and, as time passed, he went to see David Hall in Standish and ask him why he was no longer referenced on Sun Life documents. Hall told him that he had been "cut off." Hunter never received any more money from Hall or Erskine, he said.

Alice Levesque of New Auburn, a retired shoe company worker, said she and her husband invested in 1995 after Steven Hall, her agent, informed her of the lawsuit. She met with Hall and Erskine and was told she would get a 20% return in six months. After receiving an intitial $600 payment to cover the monthly payment of the annuity she cashed in and six $100 payments monthly, she met with Richard and Petit at her house in 1996.

There, she told Silsby, Petit told her she could not pay the money back. Levesque said when she asked Petit where the money had gone, she received no response. She never received any more money from the defendants or Erskine, she told Silsby.

William Daughinee, a sawmill manager from Willamantic said he invested in 1995 at the advice of David Hall, his agent. He said he withdrew his entire retirement account from Sun Life and wrote out a personal check to Capital Placement Services. He too was guaranteed a 20% return in six months.

Eventually, after the due date was past, Hall called him he testified and said he "was sorry and was in lots of trouble. He thought it was a good deal.'' He never received his money from the defendants, Daughinee told Clark.

Sally Bates, a retired nurse from Lewiston, invested in 1995 at the suggestion of Steven Hall, her insurance agent, she told Silsby. She said she thought the lawsuit was something Sun Life was investing in and agreed to issue her annuity checks of $27,000 to Capital Placement Services, Erskine's company. She contacted Hall after the six month period had elapsed, she testified and ultimately she was never paid any money back by either Hall or Erskine.

After the jury was released for the day, Clark entered a long list of exhibits that the prosecution says will show that Petit spent the money invested in her lawsuit to support her "lavish lifestyle,'' as the criminal complaint states.

In addition to the bank records of Paradis, Richard, Ron Caron, Petit's Key Bank counsel, Elaine Spohr, a part-time household helper of Petit and Sherrie Girard, a former Petit employee at the Old Orchard Beach Pier, the government also listed credit cards for Petit and her former husband.

Clark also submitted receipts for hotels in Florida and Boston, records for an apartment in Boston maintained for Petit's lawyers, parking garage records, records for Matthew Petit's school and a host of others.

"How money was spent is not relevant to whether people were defrauded,'' Beneman said to U.S. District Court Chief Judge D. Brock Hornby. "How it was spent is how it was spent. Catherine Petit's position is that these are not improper expenditures.''

Hornby issued a ruling giving tentative approval to the submissions.

Among those in attendance Tuesday was a representative from Pierce Atwood, Key Bank's law firm. Testimony will resume on Wednesday.

Portland, Maine

7:05 p.m.