Twin Cities hedge fund manager James Fry was found guilty on federal charges Wednesday that he misled investors when he sent their funds to former Wayzata businessman-turned-felon Tom Petters.

The jury of eight women and four men reached a verdict Wednesday on day three of deliberations.

Fry was convicted on all 12 counts of wire and securities fraud, and of making false statements to the Securities and Exchange Commission for his role as an investment manager with convicted Ponzi scheme operator Tom Petters.

After the verdict U.S. District Judge Richard Kyle denied a motion by the government to immediately detain Fry as a flight risk.

“He has had a clean record to date,’’ Kyle said.


Fry’s attorneys contended that he believed Petters was running a legitimate electronic consumer goods business.

But the government argued that Fry hid from investors the relationship between close Petters associate and convicted felon Frank Vennes Jr. and Fry’s Arrowhead Capital Management; misled them about big-box retailers being the source of profits on their investments, and failed to inform them when payments on investments became late and delinquent.

The heart of Petters’ Ponzi scheme was a ruse to investors that they were financing the purchase of surplus consumer electronic goods at a discount for release to big-box retailers like Costco and Sam’s Club for a profit. Most of the investments were in the form of short-term promissory notes. But there were no electronic goods and no big-box retailer customers. Instead, money from new investors was used to make payments to old investors.

The federal trial of Fry marks the last foreseeable defendant in the $3.65 billion Petters Ponzi scheme, the largest criminal fraud in Minnesota history.

By late 2007 and in early 2008, the Petters operation was coming up short on new investors, and paying off those promissory notes in a timely manner became a problem.

At Arrowhead, extensions were approved for some notes to keep them out of default. The government claims that Fry was liable for not telling his investors about the late payments.

The Petters Ponzi scheme collapsed in September of 2008.

Fry’s trial in U.S. District Court in St. Paul lasted three weeks and one day. The jury received the case Monday afternoon after closing arguments by federal prosecutors and Fry’s defense team.

David Phelps • 612-673-7269 Celia Ampel • 520-307-0759