Barclays Bank was on the verge of giving James Fry and business partner Frank Vennes a $150 million line of credit to invest with Tom Petters when the bank learned of Vennes’ criminal background and brought the transaction to a screeching halt, a Barclays official testified at Fry’s trial Tuesday.

“I was taken aback,” testified Barclays Capital director Andrew Shuster as he recalled being informed by Vennes of his late 1980s conviction on charges of money laundering and drug sales. “I don’t often get calls like that. I was shocked. I thanked him and told him I would get back to him.”

“We terminated discussions of the transaction shortly after that,” Shuster testified about the 1999 conversation. “I told him we could not go forward due to his background.”

Shuster’s testimony is part of the government’s attempt to demonstrate that Vennes’ criminal past was toxic when it came to getting funds from conventional sources and that Fry, as a result, started to hide Vennes’ presence and his past from prospective investors.

Fry, the former manager of Arrowhead Capital Management, is on trial, accused of 12 counts of wire and securities fraud and of making false statements to the Securities and Exchange Commission.

Shuster said Vennes told him that he had been entrapped by undercover federal agents in a money laundering sting and that he was seeking a presidential pardon for his crimes, which also included charges of illegal firearms sales. Vennes pleaded guilty to the money laundering charge and no contest to the others and received a five-year prison sentence.

In connection with the Petters Ponzi scheme, Vennes pleaded guilty in February to two counts of aiding and abetting securities fraud and unlawful monetary activity.

Under questioning by Assistant U.S. Attorney Kimberly Svendsen, Shuster said he contacted his company attorney who arranged for an independent investigation into the backgrounds of Vennes, Fry and Petters and confirmed Vennes’ version of events.

For nearly a decade, Fry, through Vennes, funneled investor funds to Petters Companies Inc. (PCI) for the purported sale of consumer electronic goods to big-box retailers. But Petters had no goods to sell and used money from new investors to repay the investments of old investors. Losses in the decadelong Ponzi scheme totaled $3.65 billion.

Fry contends that he had no idea that the big-box sales were bogus and that for nearly all of the time he did business with Petters, his Arrowhead investments paid off on schedule.

Under cross-examination by defense attorney Joe Friedberg, Shuster acknowledged that the investigation prompted by Vennes’ acknowledgment of a criminal record also turned up some unspecified concerns about the background of Petters.

“You were told not to say anything,” Friedberg declared.

“Yes,” Shuster replied.

“Why?” Friedberg asked.

“I don’t know,” Shuster answered.

Shuster also told Friedberg about his first impressions of meeting Fry, Vennes and Petters on a visit to the Twin Cities while researching the proposed lending arrangement. Shuster said he found Fry to be the most financially savvy of the group. The born-again Vennes “wore his faith on his sleeve” and tried to talk to Shuster about Jesus while Petters was described as “proud of himself.”

Fry’s trial began Monday and is expected to last three weeks.