Defense attorney: Petters duped my client

The trial of Twin Cities hedge fund manager James Fry, which began Monday, will have a distinct Tom ­Petters theme to it.

Based on opening statements by the prosecution and the defense in a St. Paul courtroom, the specter of Petters will loom large as both sides attempt to assess blame in an investment loss by Fry that the government put in the realm of "hundreds of millions of dollars."

"You need to know a little bit about Tom Petters," Assistant U.S. Attorney Timothy Rank told jurors at the beginning of his remarks outlining the government's charges against Fry. "Tom Petters lied to Jim Fry and Fry turned around and lied to his investors."

But defense attorney Joe Friedberg said Fry's judgment when he invested with Petters was clouded "under ether provided by Tom Petters" who engineered "the Pulitzer Prize of Ponzi schemes" that only a handful of Petters' closest associates knew about.

Fry is charged with 12 counts of wire and securities fraud and of making false statements under oath to the Securities and Exchange Commission.

The government alleges that Fry knowingly misled investors about the safety of the Petters scheme by hiding information about the criminal background of felon Frank Vennes Jr., the sole conduit for transactions between Fry's Arrowhead Capital Management funds and Petters Companies Inc. (PCI).

According to the government, Vennes turned to Fry in the late 1990s as a source of financing for Petters when Vennes could not get his own from conventional sources because of his criminal record. The funds provided by Fry and others were purportedly for the purchase of consumer electronic goods at the wholesale level for resale at the retail level. But instead, Petters used investor funds to pay earlier investors in the Ponzi scheme.

But the prospect of large, steady commission checks proved too alluring to Fry, Rank said.

"Mr. Fry made more than $30 million, which he spent on homes, property in multiple states, cars, boats and even a jet," Rank said. "Investors lost more than $100 million because they trusted Jim Fry. Jim Fry got his money for lying to investors."

Friedberg, however, said Fry was a victim of the Petters Ponzi scheme. Friedberg said $3.5 billion "in investor money went into the toilet with him [Petters]. They were victims just like Jim Fry. Were they all negligent? Yes. Were they all crooks? No."

Friedberg said Fry believed his transactions with Petters were legitimate.

"Petters bought Polaroid, Fingerhut, Sun Country Airlines and Redtag to give him legitimacy. None of those companies could figure it out. He gave millions to charities and hired one of the top law firms in the Twin Cities and they didn't know," Friedberg said. "People overlooked a few glitches here and there because they had a history of making good money."

Testimony also is expected to depict a business relationship gone bad between Fry and Vennes as Fry was rebuffed in attempts to deal directly with Petters and cut out Vennes' considerable slice of the commission pie.

"Jim Fry and Frank Vennes were not the best of friends. Their relationship deteriorated very quickly," said Rank. "These two men despised each other but stayed together as a marriage of necessity."