Petters Associate, Fund Mgr. Fry Guilty On All Counts
A jury on Wednesday found hedge fund manager James Fry guilty on charges that he fraudulently raised money for investment in Petters Company, Inc. (PCI), the company formerly run by convicted Ponzi schemer Tom Petters.
Following a four-week trial, the jury convicted Fry on five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the U.S. Securities and Exchange Commission (SEC), according to Minnesota’s U.S. Attorney’s office.
Fry was charged in 2011 along with Frank Vennes, who allegedly served as one of Petters’ primary fundraisers.
Vennes made a last-minute guilty plea in February, just before he was scheduled to go on trial. But Fry pleaded not guilty.
Petters raised money to perpetuate a Ponzi scheme by selling PCI notes to hedge funds, which supposedly would finance the purchase of consumer goods, when in fact they didn’t.
Fry, who was CEO of Minnetonka-based Arrowhead Capital Management, was accused of working with Vennes to raise money for Petters’ $3.65 billion Ponzi scheme. During trial, prosecutors presented evidence that Fry raised hundreds of millions of dollars from investors through hedge funds under the name Arrowhead Funds, the U.S. Attorney’s Office said. He ultimately collected about $30 million in commissions and fees for sending those investor funds to Petters’ company.
The Star Tribune pointed out that there was no testimony or evidence in Fry’s trial to suggest he knew that the Petters operation was a fraud; rather, it focused on the fact that he withheld important information from investors and lied to the SEC.
While the government says that Vennes was closely involved in all of the Arrowhead Funds’ dealings with Petters, Fry concealed Vennes’ involvement in order to keep investors in the dark about Vennes’ criminal background.
Fry also lied to investors by telling them that the Arrowhead Funds were receiving direct payments from big-box retailers, when in reality, all payments on the PCI notes came from PCI itself, the U.S. Attorney’s office said. And he failed to tell investors when payments came in late.
In 2010, after the Ponzi scheme collapsed, Fry lied during sworn testimony before the SEC, saying he was unaware that the Arrowhead Funds weren’t paid directly from retailers, the U.S. Attorney’s office said.
Fry faces a maximum penalty of 20 years in prison for each count of wire fraud and five years for each count of securities fraud and making false statements. U.S. District Court Judge Richard Kyle will determine his sentence at a yet-to-be-scheduled hearing. Sentencing will occur in two to three months, according to the Star Tribune.
Fry’s conviction likely marks a final chapter in the Petters sage, which has been described as the largest criminal fraud in Minnesota history.
Joe Friedberg, a member of Fry’s defense team, said his client was “stunned” by the outcome, the Star Tribune reported. “We’ll make a decision later about an appeal,” he reportedly said.
Of the 13 people charged in relation to the Petters fraud, only Petters and Fry went to trial; the rest pleaded guilty.
Petters, who is serving a 50-year prison sentence, recently asked that his sentence be thrown out, claiming that his former attorney, Jon Hopeman, withheld a government plea offer. But Hopeman and a federal prosecutor reportedly contend that Petters not only knew about a potential plea deal offer, but he also rejected it several times.
Petters broke his silence in 2012, speaking from prison in an exclusive interview with Twin Cities Business Editor in Chief Dale Kurschner. To read the resulting feature story, click here.