Nov. 4 (Bloomberg) -- Thomas Petters had no idea a device on his assistant’s key ring was recording him when he said not to worry about the “crime” they were committing.

He had a plan to shut it down, he told her. But, if “worst came to worst,” he said, “you wouldn’t go to jail. I would.”

Worst came, and now Petters, who founded his own wholesale business, is trying to turn his prediction on its head.

On trial in St. Paul, Minnesota, on charges he ran a $3.5 billion Ponzi scheme, Petters says he had no idea that she and others in his firm were cheating the hedge funds that invested with them.

And yet, he seems to have known about it.

“This is one big f---ing fraud,” he said on another recording, played to jurors last week.

That was taped three months before Bernard Madoff blew away previous standards for a really big crime. He told the feds last December he had been running a $50 billion pyramid scheme.

Prosecutors now say investors lost more than $13 billion in real money to Madoff’s Ponzi scheme. When it shut down, investors had been told they had some $65 billion.

Only $13 billion? You get the point that Madoff distorted our idea of how big is big when he claimed a $50 billion scam. Even at that reduced amount, the Madoff rip-off outranks the Minnesota scheme for pure size, if not creativity.

Electronics Bargains

Out in Minnesota, folks at Petters Group Worldwide LLC were telling hedge funds they were investing in loads of TV sets and DVD players. The electronic supplies, supposedly bought for almost nothing when Circuit City Stores Inc. went under, were supposedly then shipped to Sam’s Club and Costco stores at a huge profit, his secretary and office manager, Deanna Coleman, told the jury.

There were no televisions, no profits. Investors allegedly were paid with proceeds from new investors, the very definition of a pyramid scheme.

The Petters scammers produced invoices for the phantom products. They made up excuses to curious investors as to why they couldn’t see the merchandise. The warehouse is locked, they said at one point, testified Gregg Colburn, manager of a hedge fund that poured millions into Petters’s operation, Interlachen Capital Group LP of Minneapolis.

The only real electronics were the ones Coleman wore in her clothes or carried on her key chain to catch her boss incriminating himself.

Coleman at one point complained on tape that she couldn’t make up any more stuff to pretend to sell.

Thwarted Embrace

Something about that touched Petters, because he cried and reached out to hug her. She recoiled, fearing he would detect her body bug. Don’t you just love secret tapes?

Maybe he wouldn’t have thought the fraud so darn big if he had known what Allen Stanford was doing. The feds earlier this year accused him of a $7 billion Ponzi scheme, which he denies.

It almost makes you wonder what the ruckus is all about in the insider trading case involving the Galleon hedge fund, which the government puts at $20 million.

Yesterday, Madoff’s accountant, David Friehling, admitted in federal court that he signed off on Madoff’s financial statements without reading them, without applying accounting standards and without verifying a single thing about them.

Friehling said he had no idea that the man he trusted, Madoff, was running a Ponzi scheme. Believe him or not, he now faces as much as 112 years in prison.

As for showing creativity of his own, Friehling admitted he filed false tax returns for Madoff and others.

His services for Madoff earned him $12,000 to $14,500 a month. Friehling agreed to hand over $3.1 million to resolve the Securities and Exchange Commission case against him, which represents the proceeds of his crimes.

Peanuts.

(Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.)

Click on “Send Comment” in the sidebar display to send a letter to the editor.

To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net.

Last Updated: November 3, 2009 21:00 EST