Frank Vennes Jr., the born-again financier who helped Tom Petters raise millions of dollars for Petters' ill-fated Ponzi scheme, pleaded guilty Friday for his role in the massive fraud.

The plea was a surprise development, coming just days before Vennes was scheduled to go to trial on charges contained in a 26-count indictment.

Instead, Vennes, 55, pleaded guilty to two of those counts: aiding and abetting securities fraud and unlawful monetary activity. Under federal sentencing guidelines, Vennes faces a 15-year prison sentence. U.S. District Judge Richard Kyle will ultimately decide the sentence.

Dressed in a gray suit, white shirt and yellow tie, Vennes mainly answered questions with a "yes" and "that's correct" when asked by Assistant U.S. Attorney Timothy Rank about his role as a fundraiser in the Petters operation.

It was not immediately clear Friday what effect the plea would have on James Fry, the Wayzata hedge fund manager who helped Vennes raise funds and who was scheduled to stand trial with Vennes beginning next week. Attorneys for Fry said the trial would be pushed back to an as-yet-undetermined date.

Fry's attorney, Joe Friedberg, said he was "mystified" by the sudden development Friday. Fry faces 12 counts of securities and wire fraud and making false statements to the Securities and Exchange Commission.

Vennes' plea was the latest dramatic twist in a case that is well past its fourth anniversary and has never lacked for intrigue. The scheduled trial of Vennes and Fry appeared to be the final chapter in the Petters saga, the largest financial fraud in Minnesota history at $3.65 billion.

Vennes and Fry would have been defendants Nos. 12 and 13 to appear before a judge in the giant Ponzi scheme but only the second and third defendants to actually go to trial. Petters was convicted by a jury in 2009. There are no other publicly identified defendants in the case.

With Vennes' plea, 11 of 12 charged in the case have pleaded guilty. Petters is currently serving a 50-year prison term in Kansas' Leavenworth prison for masterminding the complex business fraud, which involved the purported sale of electronics equipment but in reality raised money from new investors to pay off older investors.

And therein lies the role of Vennes and Fry, who allegedly misled investors about the nature of their investments, failed to disclose Vennes' criminal background from a 1987 run-in with the law and did not report delays in interest payments as the scheme started to collapse in 2007.

"The defendants' lies prevented investors from accurately assessing the safety and soundness of their investment and contributed to Petters' Ponzi scheme becoming a multibillion-dollar fraud," said federal prosecutors in a trial brief outlining their case last week.

But Vennes and Fry, who developed an intense dislike for each other during the course of the scheme, were expected to argue at trial that they, too, were duped by Petters, just as other investors were fooled.

"My client had 10 years of good, solid deals with Petters and had no reason to believe Petters was running a Ponzi scheme," Friedberg said in an interview earlier this week. "Mr. Fry is a victim rather than a criminal."

The Petters case has been on the public's radar since September of 2008, when federal agents mounted a massive raid on the Petters business empire, which at one point ranged from Petters Group Worldwide to Sun Country Airlines and Polaroid.

The raid was the result of an explosive confession by one of Petters' top lieutenants, Deanna Coleman, who also wore a secret recording device on her body in the weeks leading up to Petters' arrest and subsequent detention.

One by one, those in the Petters Cos. Inc. (PCI) circle who participated in the operation pleaded guilty to charges against them. Some of those participants were expected to testify during the Vennes/Fry trial, including an employee of Fry's Arrowhead hedge funds and hedge fund managers from Florida who also invested with Petters through Vennes.

The government alleges that the investments with Petters were extremely lucrative for both Vennes and Fry. According to government calculations, Vennes made more than $100 million in commissions over 15 years; Fry collected $42 million over 10 years.

Vennes, who pleaded guilty to firearms, drug and money-laundering charges as a businessman in Bismarck, N.D., in 1987 and did prison time, was a born-again Christian who turned to the faith community for early investors in the Petters operation. As he needed to raise larger amounts, Vennes hooked up with Fry's Arrowhead fund and the two persuaded Florida hedge fund managers to put money in the pot.

All the while, Vennes and his fund managers were telling investors that they were being paid by big-box retailers such as Sam's Club and Costco for the electronic consumer goods they thought they were financing for Petters to sell. In reality, the payments to the funds were coming from PCI because there were no sales to retailers.

The government also alleged that Vennes' criminal background was buried because knowledge of that might have scared away investors. And investors weren't informed when interest payments were delayed or in default, the government asserts.

David Phelps • 612-673-7269