Arrowhead's Fry Wants Fraud Charges Dropped

Sep 23 2011 | 12:39pm ET

Hedge fund manager James Fry says that a business associate's criminal record wasn't relevant to his investors.

Fry, the owner of Arrowhead Capital Management, is seeking to have the charges that he aided and abetted the Thomas Petters Ponzi scheme dropped. On Tuesday, his lawyer, Joe Friedberg, told the federal District Court in St. Paul, Minn., that Frank Vennes, a fundraiser for Petters, was a mere "courier" and "agent" of Petters, meaning that Fry was not obliged to disclose his convictions on money laundering, unauthorized firearms sales and cocaine distribution.

Both Fry and Vennes were in court on Tuesday, also seeking to have charges that they misled investors about Petters tossed. According to prosecutors, Fry lied to his clients about Petters' default on notes he sold to Minnetonka, Minn.-based Arrowhead with Vennes' help. He is also accused of making false statements to the Securities and Exchange Commission.

Prosecutors heaped scorn on Fry's argument about Vennes' past, noting that one bank dropped Fry as a client in 2000 when it learned of Vennes' convictions, and that Fry had to all but beg KPGM to remain his hedge fund's auditor after they expressed concern about Fry's failure to notify investors about Vennes, who received more than $105 million in commissions from Petters.

Prosecutor Tim Rank said that Fry's claim that Vennes' past was irrelevant to his investors "defies common sense."

The hearing also revealed that Vennes has spent more than a decade trying to have his name cleared. Fry was able to convince KPMG to remain onboard in part by telling the auditor that Vennes' convictions were "before the executive committee of the White House for expungement and complete discharge."

President Bill Clinton chose not to pardon Vennes, but he kept trying during the George W. Bush administration. According to prosecutors, former Sen. Norm Coleman (R-Minn.) sought pardons for Vennes in 2002 and 2004. In 2007, Rep. Michelle Bachmann (R-Minn.), now a Republican presidential candidate, wrote to the president on Vennes' behalf, as well. She withdrew that appeal after Vennes—who donated to her campaigns in 2006 and 2008—was linked to Petters.

Fry and Vennes, who are both free on bail, are set to go on trial in February. If convicted, Fry faces up to 60 years in prison, more than the 50 years Petters is serving for running the $3.65 billion Ponzi scheme, in which Arrowhead invested more  than $500 million.


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