Witness: James Fry aided sales efforts even as the Petters Ponzi scheme crumbled

Arrowhead Capital Management continued to aggressively seek new investors for Petters Companies Inc. (PCI) even as the walls began collapsing on the $3.65 billion Ponzi scheme, an executive for the Twin Cities-based hedge fund testified Monday.

Lisa Resnick, a former senior vice president for sales and marketing at Arrowhead, also testified that fund manager James Fry played a role in developing and revising promotional material relating to the Petters investment to present to potential clients.

Fry is on trial in U.S. District Court in St. Paul, facing 12 counts of wire and securities fraud and accused of giving false statements to the Securities and Exchange Commission for his role as a financier for the Petters operation. Fry denies having any knowledge that Petters was operating a scam.

Resnick said the firm sent out investor "pitch books" and made PowerPoint presentations at investor conferences in the fall of 2007 and the winter and spring of 2008 but abruptly stopped seeking new investors in May 2008, shortly before the Tom Petters-led operation was exposed as a criminal fraud and put out of business.

"Mr. Fry said, 'You are halting marketing. You can't send out additional information until things clear up,' " Resnik said of a conversation she had with Fry in May 2008.

Resnik testified that she could not recall what issue prompted Fry to stop marketing to new investors. But according to federal prosecutors, Petters began delaying payments to investors starting in late 2007 as he unsuccessfully sought new sources of funds to stave off his financial implosion.

Resnick also testified that the so-called pitch books and other marketing materials were approved by Fry, contradicting Fry's previous testimony to the SEC, for which he faces false-statement charges.

At the heart of the Petters scheme were multiple fictitious transactions where investor funds were said to be used for the purchase of surplus electronic items for sale at a profit to big-box retailers. But no such transactions occurred, and money provided by new investors was used to pay off the investments made by old investors.

Resnick worked at Arrowhead briefly, from the summer of 2007 until June of 2008. She said she was told that her position had been eliminated at the time of her departure.

"I was the project manager," Resnick said of a PowerPoint demonstration she helped design for investor conferences. "I was to make it look attractive and easy to understand."

As part of her marketing duties, Resnick said she also was instructed to make "cold calls" to potential investors and send them marketing materials if they were interested.

"Jim gave me a very large book with contact information," Resnick said.

"It was essentially a puff piece, like a brochure you get in the mail?" Richman asked Resnick.

"Yes," she replied.

Fry was introduced to Petters by Frank Vennes Jr., a born-again ex-convict who had been raising funds for Petters on a smaller scale and saw Arrowhead as a new source of capital. Vennes pleaded guilty earlier this year to aiding and abetting securities fraud and unlawful money activity.

The government alleges that Fry tried to hide Vennes' role in the operation over concerns that his criminal background would scare away new investors.