Jury: Petters associate Fry guilty

  • Article by: DAVID PHELPS and CELIA AMPEL , Star Tribune staff writers
  • Updated: June 13, 2013 - 9:47 AM

James Fry, who helped raise millions for Petters Cos. Inc., was the last criminal defendant tied to $3.65 billion Ponzi scheme.


Hedge fund manager James Fry walked out of federal court in Minneapolis with his wife after a jury found him guilty Wednesday on 12 counts.

Photo: BRIAN PETERSON • brianp@startribune.com,

CameraStar Tribune photo galleries

Cameraview larger


The last criminal defendant tied to the $3.65 billion Ponzi scheme of Wayzata businessman turned felon Tom Petters was convicted Wednesday on federal charges that he misled investors in a business transaction that ultimately lost more than $100 million.

James Fry, a Twin Cities hedge fund manager, was found guilty on all 12 counts by a jury of eight women and four men who deliberated 13 ½ hours over three days. The jurors told U.S. District Judge Richard Kyle that their decision was unanimous.

Fry’s conviction likely closes the book on the Petters saga, the largest criminal fraud in Minnesota history.

Wearing a dark gray suit with a white shirt and striped tie, Fry, 59, sat motionless as the jury’s determination of guilty was repeated by Kyle for each of the counts.

Joe Friedberg, a member of Fry’s defense team, said his client was “stunned” by the outcome.

“We tried as hard as we could. Now we go on to sentencing,” Friedberg said outside the courtroom after the verdicts were announced. “We’ll make a decision later about an appeal.”

Assistant U.S. Attorney Tim Rank called the verdict “a just conclusion” for a “very complex case.”

Fry is the 13th and last Petters-related person to acknowledge guilt or be convicted in the nearly five-year legal odyssey that dominated headlines as a fraud of grand proportions. The scheme was exposed by a Petters insider, Deanna Coleman, who went to the government in 2008 and spilled her insides about a 10-year operation that fooled investors into thinking they were buying and reselling consumer electronic goods when Petters and his cronies instead were using funds provided by new investors to pay off obligations to old investors.

After the verdict, the judge denied a motion by the government to immediately detain Fry as a flight risk. “He has had a clean record to date,’’ Kyle said. Sentencing will occur in two to three months.

Breaking down the verdicts

There was no testimony or evidence in Fry’s trial that he knew the Petters operation was an illusion. Rather, Fry, head of Arrowhead Capital Management, was convicted on charges that he withheld vital information from his investors that might have made their investments with Petters look decidedly less attractive and that he lied to the Securities and Exchange Commission (SEC) about that after the Ponzi scheme had collapsed.

Specifically, in nine securities and wire fraud counts, Fry was found guilty for not informing his investors that his only contact with Petters was through Frank Vennes Jr., a convicted felon sent to jail in the 1980s on money laundering and other crimes.

Several institutional investors testified that knowledge of Vennes’ criminal background would have been a red flag that would have dissuaded them from investing with Fry even though the returns on those investments were a healthy 10 percent to 12 percent.

Fry was also found guilty of telling investors that payments to his hedge funds on investment profits came directly from the big-box retailers that were buying consumer goods from Petters when the purported investment returns came from a bank account controlled by the Petters operation.

Also, Fry was convicted of not telling investors when payments allegedly coming from retailers deviated from the customary 90-day payment schedule to a pattern considerably later than that. Indeed, several notes needed to have extensions approved by Fry in order to avoid default.

The former dentist turned hedge fund manager also was found guilty of telling the SEC that he did not know his Arrowhead funds were not being paid by retailers and that he approved marketing materials containing false information.

Driven by greed or a victim?

  • related content

  • James Fry, right, was convicted Wednesday, but U.S. District Judge Richard Kyle denied a prosecution motion to take him into custody immediately. Sentencing likely will come in two or three months.

  • Petters


    The conviction Wednesday of hedge fund manager James Fry is likely the last prosecution in the $3.65 billion Tom Petters Ponzi scheme. Here’s a list of the players and their sentences.

    Tom Petters: mastermind; convicted, 50 years in prison.

    Deanna Coleman: Petters assistant; pleaded guilty, 366 days in prison.

    Michael Catain: money launderer, pleaded guilty, 7½ years in prison.

    Larry Reynolds: money launderer, pleaded guilty, nearly 11 years in prison.

    Robert White: document fabricator, pleaded guilty, five years in prison.

    James Wehmhoff: Petters’ accountant, pleaded guilty, one year home detention.

    Gregory Bell: hedge fund manager, pleaded guilty, six years in prison.

    Harold Katz: hedge fund accountant, pleaded guilty, 366 days in prison.

    David Harrold: hedge fund manager, pleaded guilty, yet to be sentenced.

    Bruce Prevost: hedge fund manager, pleaded guilty, yet to be sentenced.

    Michelle Palm: hedge fund executive, pleaded guilty, yet to be sentenced.

    Frank Vennes Jr.: money raiser, pleaded guilty, yet to be sentenced.


    Petters Ponzi SCHEME

    Background: At $3.65 billion it was Minnesota’s largest Ponzi operation ever. Investors thought they were financing the purchase of surplus consumer electronic goods. Instead, new investors were paying old investors.

    Collapse: The scheme collapsed in 2008 when a key Petters lieutenant, Deanna Coleman, confessed.

    Punishment: Petters got a 50-year sentence. Eleven others pleaded guilty.

    Payback: More than $300 million has been collected for victims.

  • get related content delivered to your inbox

  • manage my email subscriptions





Connect with twitterConnect with facebookConnect with Google+Connect with PinterestConnect with PinterestConnect with RssfeedConnect with email newsletters