ST. PAUL, Minnesota (Reuters) - A federal judge sentenced Minnesota businessman Tom Petters to 50 years in prison yesterday for running a $3.65 billion Ponzi scheme, one of the largest ever uncovered.

The sentence means the 52-year-old founder of Petters Group Worldwide Inc likely will spend the rest of his life behind bars. Prosecutors sought a 335-year sentence, while the defense said a term as short as four years was more appropriate.

Petters blew kisses to family members in the packed St. Paul, Minnesota courtroom after US District Judge Richard Kyle handed down the sentence.

Petters will appeal the sentence, said Paul Engh, a lawyer for Petters, in an interview.

A federal jury convicted Petters in December on all 20 criminal counts that he faced, including wire fraud, mail fraud and money laundering.

The prison sentence is one-third as long as the 150 years that Bernard Madoff got for his estimated $65 billion Ponzi scheme.

"This was a massive fraud," Kyle said as he pronounced the sentence. "Tom Petters was at the front and centre of every stage. Tom Petters was captain of the ship. It would not have happened without his direction."

Prosecutors accused Petters of using one of his companies to bilk investors who thought he was using their money to buy consumer electronics for resale to retailers such as BJ's Wholesale Club Inc and Costco Wholesale Corp.

A Ponzi scheme occurs when money from new investors is used to pay earlier investors.

Using notes, Petters appeared prior to his sentence to express some contrition.

"Every day, I am fraught with pain and anguish for those affected by my actions," he told the judge. "For those who lost money, I will work to repair and replace what has been lost."

Petters must serve at least 85 percent of his sentence, and thus is not eligible for release until his 90s, Kyle said.

Petters has been held for one-and-a-half years in a Sherburne County, Minnesota jail following his arrest. He is expected to move to a federal prison.

"Tom Petters was a fraud," Todd Jones, the US attorney in Minnesota, told reporters after the sentencing. "Tom Petters built his life on deceit and lies, and today the cheque came due."

In seeking a lighter sentence, Petters' lawyers had cited punishments in other cases, and their client's alleged suffering from a pituitary adenoma that they said could result in blindness or paralysis.

Petters' lawyers also had asked that their client be committed to a medical facility because of his health and because his notoriety would make him a "marked man" in prison.

"We view him as a flawed, but benevolent individual," Engh said before the sentencing. "He is a very decent guy."

Kyle suggested that Madoff's punishment was not a factor in the sentencing.

"This is not US vs. Madoff, this is US vs. Petters," he said. The judge said he had received at least 50 letters urging leniency.

Another large pending case involving an alleged Ponzi scheme is that of Texas businessman Allen Stanford, who the government has said ran a $7 billion fraud.