February 18, 1999

Portland, Maine

The 87-count fraud trial against Catherine Duffy Petit, Paul Richard, Roland Morin and David Hall wrapped up for the week Thursday after jurors heard testimony from the former bankruptcy trustee for Petit's estate and a number of Sun Life investors called by prosecutors.

Peter Fessenden, trustee for Petit's 1993 involuntary bankruptcy estate from June 1994 until December, 1995, resumed his testimony from Wednesday and was grilled by defense lawyers about his activities in overseeing Petit's estate.

One major source of contention in Thursday's testimony by the former trustee was the issue of whether Petit's corporations were included as assets of the estate controlled by the trustee.

In addition to Petit, Old Orchard Beach Pier Co., CDP Inc. and Whiteway Amusements were all listed as plaintiffs when the lawsuit against Key Bank was first filed in 1986. Petit has been placed into involuntary bankruptcy, but the corporations - of which she is president and sole stockholder - have not.

Fessenden told Petit co-counsel David Beneman in his cross-examination that the stock of the company was listed as an asset, but that he never took any legal action as trustee to take control of the stock and vote Petit out.

"You didn't call a meeting as trustee and vote the shares or change the corporate structure in any way, did you,'' Beneman asked Fessenden. "No, I didn't,'' he replied.

The issue has been magnified in Assistant U.S. Attorney Donald Clark's questions to a series of government witnesses who were told that their money was going to support Petit's lawsuit against the bank. Clark has repeatedly asked witnesses whether they were told Petit was in bankruptcy.

Fessenden told Clark in his redirect examination that he was told that the corporations existed solely as plaintiffs in the lawsuit and that had he known that assignments were written to investors on behalf of the corporations he would have considered any money realized to be an asset of the estate.

In addition to mail fraud, conspiracy, securities fraud and money laundering, the defendants have been charged with bankruptcy fraud.

That question by Clark to witnesses has usually been accompanied by one that asks whether they were told that the Key Bank lawsuit was dismissed by a York County Superior Court judge in May, 1995.

Fessenden - who appointed himself as lawyer to the estate when he was selected as trustee - was questioned at length on the subject by BenemanThursday.

As court-appointed trustee, Fessenden testified that he was concerned with two issues in Petit's estate. The first was to trace the disbursement of a $3.9 million settlement with a Portland law firm in 1990. The second, he testified, was to examine the issue of whether the Key Bank case should be exempted from the estate, as Petit had requested.

Fessenden ruled that it should remain part of the estate and was later affirmed by a bankruptcy judge.

He told Beneman that the estate had definite interests in the dismissal of the suit and in the subsequent appeal, but that he did not hire a lawyer for the estate to pursue the appeal and instead let an attorney hired by Petit's corporations handle the appeal.

Ultimately, the Key Bank suit was reinstated on an ammended complaint when the Maine Supreme Judicial Court overturned the lower court ruling in December, 1996.

However, in November, 1995, five months after the lower court ruling, Fessenden filed an "Intent to Abandon" notice with the bankruptcy court. In short, he determined that the appeal stood little chance of success, and he determined that the costs of pursuing the suit would outweigh the advantages.

Questioned by Beneman, Fessenden acknowledged that he told the bankruptcy court that the chances of winning the appeal were comparable to "being struck by lightning and winning the lottery simultaneously.''

He also told the judge, Fessenden testified under cross examination by Evan Slavitt, Richard's lawyer, that he would have recommended abandoning the case even if he knew that the appeal would win.

Petit's original lawsuit against the bank came with a $275 million pricetag. It has recently been valued as high as $66 million before punitive damages. Last year, State Senator Peter Mills, a lawyer from Skowhegan, issued a report to the bankruptcy court saying the case was entirely winnable and estimated that 94% interest would have to be tacked on to any final award.

In 1987, a jury awarded Scarborough Racetrack owner and unsuccessful gubernatorial candidate Joe Ricci $27.5 million in his law suit against Key Bank alleging tortious interference.

Fessenden testified that the entire amount liquidated from Petit's estate while he was trustee was slightly over $30,000.

Beneman also asked Fessenden whether he ever considered questioning Thomas Blackburn about his role as a lawyer for Frank Corrao. Corrao was an early backer of Petit's lawsuit and Blackburn was issued a check of $127,000 for Corrao out of the proceeds of the BSSN settlement.

Corrao testified at the beginning of the trial that he received an amount from Blackburn "far less" than that.

When he assumed the role as trustee, Fessenden was provided an accounting that listed all the money paid out of the settlement. Blackburn's representation of Corrao was listed on the accounting. In addition, upon his appointment as trustee, Fessenden reviewed letters from Petit to Richard and a Lewiston couple asking for an accounting of money that went to Blackburn.

Fessenden said he never questioned Blackburn or subpoenaed his records. He also told Beneman that he was unaware that a notebook of assignments issued to investors that Clark was using as exhibits in the case were provided by Blackburn.

The defense has questioned the prosecutor's reliance on Blackburn's accountings of the $4.3 million he testified he raised for Petit's lawsuit after a number of discrepancies arose in his testimony earlier this month.

Blackburn was labelled as the ringleader of the alleged $6.8 million fraud by Beneman earlier in his opening statements. He has pleaded guilty to one felony charge and agreed to testify in exchange for sentencing leniency.

So too have James Erskine, Donald Shields, Greg O'Halloran, Armand Pelletier and Robert Paradis. Erskine, the former owner of Capital Placement Services, testified last week.

At the start of the day, which was marked by the dismissal of a juror who called in sick and the insertion of an alternate, jurors heard an audio tape of a 1995 bankruptcy hearing.

In that hearing, Fessenden questioned Petit on the source of her money, whether she was raising money to pay for the Key Bank litigation and whether she authorized anyone to raise money for the suit on her behalf. She answered no to the last two questions and told Fessenden that she had listed all her assets on the bankruptcy schedules.

Slavitt cross-examined Fessenden later and went over his deposition of Richard which was read into the record on Wednesday. Fessenden agreed that he never asked Richard any questions concerning H.E.R. Inc. and that Richard had not signed the two agreements with early investors that Fessenden had knowledge of.

The former trustee also acknowledged that any assignment that had been issued without his knowledge could not have been used as a proof of claim against Petit's estate.

"It might have caused trouble, but could not be used against the estate,'' he told Slavitt.

Shortly after the noon break, prosecutors resumed calling a number of elderly Sun Life investors to the witness stand.

The investors, all of who were customers of former Sun Life of Canada insurance agents David Hall and his brother Steven, all testified that they were approached by either of the two and eventually signed over their annuities.

All of the checks ended up in the bank account of Capital Placement Services, Erskine's company.

Erskine testified last week that he raised $1.8 million for Petit's lawsuit. Of that, he said he kept $446,000. He also acknowledged lying to the FBI and to Clark on a number of occasions to "minimize his involvement."

In an agreement reached with the state Attorney General's office in their pending civil suit against the defendants, Sun Life of Canada agreed to pay $2.3 million to partially reimburse their customers who lost money in the alleged fraud.

Sun Life was represented in the settlement by Verrill & Dana and Pierce Atwood, Key Bank's lawyers.

Louis Taxiarchis of Buxton, a retired pathologist, said he signed over more than $100,000 in May, 1995 to Capital Placement Services on the advice of David Hall, his former agent.

When the promised return date elapsed and he was informed by the IRS that he owed taxes on the annuity withdrawal, he said he contacted David Hall and met him and Petit and Richard to inquire who would pay his $38,000 tax bill.

Petit told Richard to take care of it, Taxiarchis testified, but Richard called the next day to say that he did not have the money to do so. He never received any money, he told Assistant U.S. Attorney Paula Silsby.

On the way out of the courtroom Thursday, Taxiarchis smiled at Richard and wished him luck.

Robert St. Hilaire, a retired roofer from Auburn, told Clark that he invested in the suit in 1995 at the advice of Steven Hall, his agent. He met with Erskine, who told him about the suit and that there was a $5 million escrow account to protect investors, he said. St. Hilaire said he cashed in his annuities and gave them to Hall. They were deposited into Capital Placement Services' account.

Ultimately, after the return date had passed, St. Hilaire said he met with Petit and she urged him to keep his money in the suit. He was given a new agreement signed by Richard which pledged that he would pay the money back. He met Richard later, he said, and Richard told him that he could not pay the money then because it was needed to pay lawyers in Boston. He never received any money back, he told Clark.

Elanor Brooks of Bethel told Silsby that she thought she was investing in Capital Placement Services and knew nothing of Petit or her lawsuit. She turned her annuity chack over to Capital Placement Services on the advice of David Hall, her former agent. Later, she also wrote out a personal check for a second investment after David Hall told her that her investment was doing well.

She was given a new agreement signed by Richard, Brooks said, but she never received her money.

Juliette Bernier of Lewiston said she didn't know she was investing in a lawsuit or that her annuities were cashed in when she agreed with Steven Hall, her agent, to make a new investment. She said she did not know that they had been deposited into Capital Placement Services' account. She was promised a 10% return, but when she questioned Steven Hall later he said he would get her 20%, Bernier said.

She said she repeatedly told Steven Hall and Paul Richard, who signed her new agreement, that she wanted to withdraw from the investment, but Hall told her that she only needed to wait a little longer for a return. Only after reading of the AG's investigation in the paper, she said, did Bernier discover that she allegedly invested in Petit's lawsuit. She never received any money back, Bernier told Silsby.

Erwin Berg of Auburn told Clark that he invested in 1995 after Steven Hall told him of an investment he thought had something to do with Sun Life. Only later, he said, did he find out he was allegedly investing in a lawsuit.

Berg said Steven Hall told him the suit was expected to deliver $200 million in damages and that it was backed by a $9 million escrow. Ultimately, he was contacted by the state, he told Clark and made attempts to retrieve his money from Steven Hall. He was never repaid, Berg told Clark.

Testimony will resume on Monday.

Portland, Maine

7:07 p.m.