February 24, 1999

Portland, Maine

Prosecutors called Robert Paradis to the witness stand Wednesday afternoon in an effort to tie the funds allegedly raised for Catherine Duffy Petit's lawsuit against Key Bank to Petit herself.

Paradis, who has pleaded guilty to money laundering charges in connection with the case, was Petit's bookkeeper from 1990 to 1997. He told Assistant U.S. Attorney Donald Clark that he handled the flow of over $4 million from investors to Petit's associates to savings accounts in his name and that he then paid bills as directed by Petit.

Most of those bills, Paradis testified, were for Petit's and her family's personal expenses, as well as costs for office space and salaries.

The Saco resident was called at the end of a long procession of government witnesses - mainly Sun Life investors - and was in the stand for approximately 75 minutes before proceedings ended.

Tuesday, U.S. District Court Chief Judge D. Brock Hornby told defense lawyers that he will not allow jurors to hear of Paradis' 1984 conviction in Georgia on drug trafficking charges unless the issue is raised in his testimony.

Paradis was initially charged with felony murder in that case, but later pleaded guilty to the drug trafficking charges and spent 18 months in prison. Jim Lawson, Petit's co-counsel, argued that Paradis' prior conviction might have had an influence on his decision to cooperate with the government less than 24 hours after he was arrested in 1997.

Paradis first met Petit in 1986, he testified, when he worked on the Old Orchard Beach Pier, which she owned in the late 1970's and early 1980's. Petit ultimately lost the pier to foreclosure, which is at the heart of her lawsuit against Key Bank.

He worked in a variety of jobs for Petit, Paradis testified, before he became her bookkeeper after her $3.9 million settlement with the Portland law firm of Bernstein, Shur, Sawyer & Nelson. The firm was a co-defendant in the Key Bank suit.

Paradis told Clark that he initially took money collected by Thomas Blackburn and Joan and Charles Roberts from investors and put it in savings accounts he established in his and his wife's name in Biddeford-area banks.

Ultimately, he said, he later received money from co-defendants David Hall and Paul Richard. Steven Hall, who was granted a mistrial and could be tried at a later date, also gave him checks collected from investors, he told Clark. Paradis placed the other defendant, Roland Morin, at Petit's Saco office four times, but said he didn't collect any money from him.

Of the "$4 million, maybe closer to $5 million" that Paradis testified he collected in the seven-year span, he said that only $85,000 went to pay for legal fees connected to the Key Bank case.

Instead, Paradis said, most of the money went to pay for Petit's personal expenses and those of family friends. He said he paid bills for rent and utilities on Petit's office in Saco, a condo in Ogonquit and an apartment in Boston.

Paradis said he paid credit card bills at Petit's direction that averaged from $10,000 to $40,000 monthly. Some were in the name of Petit's former husband Dennis, he testified. Richard received clothes and shoes as gifts from Petit, he said. He also said he paid a number of early investors back.

All of the deposits and expenditures were carefully noted on slips and stored with carbons of bank checks in envelopes every month, he testified. Clark produced a stack of bank books and a summary tape compiled by Paradis as evidence, which he will likely scrutinize Thursday. He had reviewed the documents Wednesday morning before his testimony, Paradis told Clark.

The tall, gray-haired witness stepped from the stand at the conclusion of proceedings. He will resume his testimony Thursday.

Stephen Morrell, a Brunswick attorney who acted as special counsel to recently-deceased trustee Joseph O'Donnell in Petit's Chapter 7 involuntary bankruptcy case, was called by Clark to the stand.

Jurors heard the transcript of a tape of a 1996 bankruptcy hearing in which Petit told Morrell that she hadn't had any income since 1993, hadn't raised any funds to fight the lawsuit against the bank, hadn't acquired any new assets aside from a non-functioning telephone and hadn't assumed any additional liabilites.

Prosecutors have charged Petit, Richard, David Hall and Morin with 87 felony counts, including bankruptcy fraud.

In addition to Paradis, Blackburn, James Erskine, Donald Shields, Greg O'Halloran and Armand Pelletier have pleaded guilty to felony charges and agreed to cooperate with prosecutors in exchange for sentencing leniency

Morrell was discharged as special counsel to the trustee by Bankruptcy Judge Arthur Votolato last year. In a report she filed to the bankruptcy court in 1997, Petit said that Morrell failed to tell the court as required that a subsidiary of his Brunswick law firm had done extensive work on behalf of Key Bank.

After initially limiting Morrell's involvement,Votolato eventually concurred, saying in a 1998 order that the "heavy presence of Key Bank in the bankruptcy proceeding" compelled him to order the hiring of a new general counsel.

Earlier in the day, the last of a long list of Sun Life investors were called to the stand. According to government exhibits, the mainly elderly investors signed over a total of $2.1 million to Capital Placement Services (CPS), Erskine's company, or H.E.R. Inc in 1995. Their agents were Steven and David Hall.

Sun Life Assurance Co. of Canada reached a settlement with the state of Maine in the Attorney General's civil suit against the defendants and agreed to pay a total of $2.3 million back to their customers. They did not admit any responsibililty. The Hall brothers were fired from their jobs.

Alice Bettany, a retired real estate broker from Standish, told Clark that she invested a total of $168,000 in two installments towards Petit's lawsuit on the advice of David Hall, her former agent. The first installment of $104,000 was signed over to CPS.

Erskine testified earlier that he kept $57,000 of that, paid his father-in-law $25,000 to settle a debt owed by Blackburn and forwarded the rest to Blackburn.

Her second installment of $68,000 was signed over to H.E.R. Inc. She didn't receive any of that back from the principals, she told Clark.

Russell Smith, a retired CMP employee from Standish and Bettany's brother, told Clark that he invested $26,000 after David Hall, his former agent, told him of an investment offering a 20% return which was backed by an escrow account. The check was signed over to CPS.

He later received a new agreement from Richard and met Petit and Richard at his sister's house later. Petit told him the lawsuit was progressing, he testified and that their day in court was approaching. He was never paid back by the principals, he said.

Erlon Marean, a retired machine shop worker from Standish, said he invested $50,000 in 1995 after hearing of the investment from David Hall. He was told by Hall that it involved real estate and that there was no risk.

Later, after hearing of the state's investigation, Marean said Richard approached him and asked him to sign a rescission letter. Richard was required by the state to list in the letter the risks involving investments with H.E.R. Inc. and to offer investors their money back. He decided not to sign the letter and never received money back prior to the Sun Life settlement, he told prosecutor Paula Silsby.

Robert Harkins, a retired food broker from Naples, said he invested $100,000 on the advice of his former Sun Life agent, Steven Hall. The checks were made payable to H.E.R. Inc, he told Silsby and he received an agreement signed by Richard promising a 15% return in one year. He never received his money, Harkins said.

Lisbon Falls-resident Royal Matthews told Silsby that he invested $17,500 through Steven Hall, his former agent and received an agreement signed by Richard which promised a 10% return in one year. He never received his money, Matthews testified.

Robert Aube, a retired mailman from Lewiston, told Clark that Steven Hall, his fomer agent, told him about the Petit lawsuit and the existence of a $5 million escrow account to back investor's money. He signed over his $145,000 annuity to CPS and later invested an additional $68,000, making the check payable to Paradis.

Aube testified that Richard gave him an agreement for the second investment and told him that the Key Bank case - which was dismissed by a lower court in 1995 and reinstated by the Maine Supreme Judicial Court in 1996 - was on appeal. He never received any of his money, Aube testified.

Frances Wentworth of Auburn told Silsby that she cashed in her $16,400 Sun Life annuity at the urging of Steven Hall, her former agent, and received an agreement delivered by Hall and Richard. She later accepted Richard's rescission letter, she said, and was paid back the full amount plus interest by a Portland law firm representing H.E.R. Inc.

Inez McCann of Sanford, a retired nurse, told Silsby that she cashed in her $14,500 Sun Life mutual fund at the urging of Steven Hall, her former agent and her check was signed over to H.E.R. Inc. She never received any money from the principals, McCann testifed.

Testimony will resume Thursday with Paradis on the stand. Clark told Judge Hornby that the prosecution expects to rest its case by next Wednesday, or possibly Thursday.

Portland, Maine

6:55 p.m.