MADISON, Wis. -

A local businessman who faced legal issues in Las Vegas two years ago pleaded not guilty to 12 federal counts of financial fraud and misrepresentation Tuesday.

Christian Peterson is accused of talking several banks into loaning him money for business purposes. But instead, he gambled with the funds or used them to pay off gambling debt, according to federal prosecutors.

Peterson is former owner of the Pancake Cafe, Fitchburg's Country Inn & Suites and the now closed Good Times Restaurant.

"He started doing cash calls that didn't make any sense to our partners, saying we needed more money to pay for interest, that we needed more money to pay off bills," said Jim Spahr, a former Peterson business partner.

Spahr, an area real-estate developer, was involved in a joint business-venture with Peterson, purchasing and developing the land where Super Target in Fitchburg sits and other nearby strip mall properties. Spahr also had 50/50 ownership of Fitchburg's Country Inn & Suites with Peterson.

Federal court documents allege Peterson used the businesses partnership -- unbeknownst to his partners -- and engaged in a scheme to defraud banks, and he obtained loans ostensibly meant for business improvements to use the money for gambling in Las Vegas.

In one instance, court documents said Peterson borrowed $1 million from Park Bank to upgrade the hotel's swimming pool, but the federal prosecutors said Peterson had no plans for such work.

"I think the indictment speaks to it very clearly," Spahr said. "A lot of the funds that we borrowed in good faith, and that the banks loaned us in good faith to complete improvements out there, now, in hindsight, we know that a lot of those funds went directly out to Vegas to pay off past gambling debts or to secure future gambling favors."

Spahr said it took years of gathering evidence, but he worked closely with the FBI to eventually bring these federal charges against Peterson.

Spahr said all of the money involved is presumably gone -- some of the incidents date back to 2006 -- but in 2010, Peterson filed for bankruptcy, owing more than $25 million.

Spahr said it not only affected him but taxpayers as well, because a lot of that money was insured by the Federal Deposit Insurance Corporation.

In June, Peterson was sentenced to five years probation in Cook County, Nev., court. It was a settlement based on eight felony counts filed against him in 2010 related to not paying back $3.75 million in gambling debt.

The federal charges carry up to 280 years in prison and up to $9 million in fines.

Peterson was released on specific conditions, which are kept confidential in federal court.  However, it was discussed in open court that one of the release conditions prevents Peterson from traveling outside of Wisconsin, with the exception of northern Illinois and the Chicago area, where he lived for a number of years growing up.

Peterson's attorney declined WISC-TV's request for comment on Monday.