Petters-Linked Hedge Fund Manager Goes On Trial

May 21 2013 | 1:02pm ET

The opposing lawyers in the fraud trial of hedge fund manager James Fry agree on one thing: Ponzi scheme mastermind Thomas Petters is not a good guy.

The trial of Fry, the founder of Arrowhead Capital Management, opened this week, some two years after he was first charged with aiding and abetting Petters' fraud by lying to investors about him and his chief fundraiser. And prosecutors did not hesitate to admit that Petters was less-than-fully-forthcoming with Fry—but that the fact does not exonerate Fry.

"Tom Petters lied to Jim Fry and Fry turned around a lied to his investors," prosecutor Timothy Rank told the St. Paul, Minn., federal jury. According to the government, Fry lied to investors about Petters' default on notes owned by Arrowhead and failed to tell clients about fundraiser Frank Vennes' criminal record. Vennes unexpectedly pleaded guilty in the case in February, delaying Fry's trial.

"Fry got his money for lying," Rank said.

Fry's lawyer, Joe Friedberg, denied that his client knowingly lied to investors, telling the jury that he was "under ether provided by Tom Petters," whom he called the author of the "Pulitzer Prize of Ponzi schemes."

Fry faces 12 counts of securities fraud, wire fraud and making false statements to the Securities and Exchange Commission.

And while the lawyers in the Fry case argue over the impact of Petters' lies, Petters himself has said that he's been lied to—by his former lawyer.

Petters claims that Jon Hopeman never told him that prosecutors offered a 30-year sentence in exchange for a guilty plea. Instead, Petters went to trial and was found guilty—and sentenced to 50 years in prison.

"But for Mr. Hopeman's ineffective assistance, defendant Petters would have received a far shorter sentence than currently imposed," Petters' new lawyer, Steven Meshbesher, said.

Meshbesher asked the court to allow Petters to plead guilty in line with prosecutors' 30-year offer.

Petters' run through the appeals process has been anything but a success so far: The Eighth Circuit Court of Appeals twice rejected his bid for a new trial, and the U.S. Supreme Court refused to hear his appeal.

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    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…