Thomas Petters Partner Sentenced To 17.5 Years For Ponzi Scheme

Posted On Tuesday, October 15, 2013
By: Christopher A. Iacono

A Minnesota federal judge sentenced the former president of hedge fund Arrowhead Capital Management LLC to 17.5 years in prison for wire fraud, securities fraud and lying to the U.S. Securities and Exchange Commission in Thomas Petters’ $3.7 billion Ponzi scheme, according to an order signed Friday. U.S. District Judge Richard H. Kyle sentenced James Nathan Fry for his role in the scheme, in which Fry intentionally misled investors while channeling $600 million in investor funds into Petters’ scheme and lying to investigators. Fry will serve 210 months for his conviction and pay $41 million in restitution. Fry will also serve his sentence in Minnesota and will participate in the court’s 500-hour residential drug abuse program, according to the order.

After a four-week trial, a federal jury found Fry guilty in June of all 12 counts against him — five counts of securities fraud, four counts of wire fraud and three counts of lying to SEC officials during their investigation of Arrowhead. Prosecutors asked Judge Kyle to sentence Fry to 25 years in prison. Fry’s attorneys argued that such a sentence was inconsistent with sentences the government sought for others involved in Petters’ scheme, including other alleged fundraisers for the fraud. Fry, Frank Ellroy Vennes and two other fundraisers accused of participating in Petters’ Ponzi scheme, David Harrold and Bruce Prevost, were all named as defendants in a 2011 criminal case against Petters’ alleged co-conspirators. Vennes, Harrold and Prevost pled guilty to their roles in the scheme.

Petters made tens of millions of dollars in commissions and management fees by funneling money into the Ponzi scheme, which purportedly used investor funds to purchase electronics for resale to big-box retailers. But his company, Petters Co. Inc., undertook no transactions, making payments solely from its own accounts, and the scam unraveled in 2008, the indictment said. Petters was sentenced in April 2010 to 50 years in prison for running the Ponzi scheme. The U.S. Supreme Court denied Petters’ request for a rehearing of his appeal in May 2012.

Vennes, a longtime associate of Petters who served as an intermediary between Petters and Fry, pled guilty in February to one count each of securities fraud and money laundering. Harrold and Prevost, who allegedly funneled $1 billion in clients’ money from a group of Palm Beach funds to Petters and collected $58 million in management fees, pled guilty in 2011 to four counts each of securities fraud.

The case is USA v. Frank Vennes et al., case number 0:11-cr-00141, in the U.S. District Court for the District of Minnesota.