U.S. District Judge Richard Kyle sentenced James Fry to 17½ years in prison Wednesday for his role as a key financial resource to former Wayzata businessman Tom Petters and his $3.65 billion Ponzi scheme.
Kyle told a stoic Fry that his offense constituted a “serious crime” that required a “substantial prison sentence” after Fry’s June conviction on 12 counts of fraud and making misleading statements to the Securities and Exchange Commission.
Fry’s sentence is second in length only to the 50-year sentence of ringleader Tom Petters among the nine defendants sentenced so far for their roles in the Ponzi scheme.
When Fry, 59, was asked if he wished to say anything to Kyle and the courtroom full of family members, friends and victims, Fry’s attorney Joe Friedberg said, “I don’t think so.”
After the sentence was handed down, Fry, wearing a business suit, appeared numb as he huddled with his attorneys and walked out of the federal courthouse in St. Paul with his family.
“I’m shocked, that’s about it,” Friedberg told reporters after the hearing, noting that an appeal of the sentence is “almost impossible.”
Federal prosecutors, who had sought a 25-year prison sentence for Fry, had no comment after Kyle’s order.
In comments to Kyle before the sentence was announced, Assistant U.S. Attorney Tim Rank argued that Fry had numerous opportunities to stop doing business with Petters but could not walk away from the deals because of the financial rewards he received in the form of commissions.
“He could have told investors the truth, but he didn’t because he was worried people would pull their money out,” Rank said. “So he chose to lie.”
Fry’s investors lost $120 million when the $3.65 billion Ponzi scheme engineered by Petters and associates collapsed in September 2008. Before that, however, he collected $40 million in fees and commissions from the transactions he conducted with the Petters operation.
Friedberg argued that the losses incurred by Fry and his Arrowhead hedge funds were a fraction of what other hedge fund managers invested and lost with Petters. One of those managers, Gregory Bell, lost more than $1 billion but received a six-year prison sentence, Friedberg said, even though he knew the Petters operation was bogus. Fry, he said, thought it was a legitimate investment.
“Mr. Fry did make misrepresentations to investors and, yes, he made a lot of money, but he did it in the firm belief that it was good for him and good for his clients,” Friedberg said.
Fry was convicted of failing to tell investors that an ex-convict with a money-laundering background, Frank Vennes Jr., was the middleman between Fry and Petters and that proceeds from their investments were coming from a Petters-controlled bank account instead of from big-box retailers, as promised. Fry also was convicted of not telling investors when payments from purported retailers exceeded the customary 90-day payment schedule.
For more than a decade, Petters and a small group of associates conducted a scheme in which investors were told that their funds were being used to purchase consumer electronic goods at wholesale prices for resale to big-box retailers at a profit. But no such goods existed, and money from later investors were used to pay off early investors.
Fry is the 13th and presumably last person to be convicted or to plead guilty for participating in the scheme. Four have yet to be sentenced, including Vennes, who faces a 15-year sentence after pleading guilty to charges of aiding and abetting securities fraud and unlawful monetary activity.