Thursday, January 31, 2013

An Overview of the Trial of Frank Vennes

UPDATE: In a surprise move, Frank Vennes pled guilty Friday.

Frank Vennes goes on trial next week in a Federal court in St. Paul Minnesota for his role as financier for the $3.6 billion Ponzi scheme orchestrated by Tom Petters.

Former Senator Norm Coleman and Congresswoman Michele Bachmann wrote letters in support for a Presidential pardon of Frank Vennes to expunge prior convictions for money laundering, drug and gun trafficking. Other political figures including former Minnesota Governor and presidential candidate Tim Pawlenty supported the pardon.

In 2006, during orientation for freshman Congress members, a Star Tribune reporter asked Congresswoman Michele Bachmann (R, MN) what her goal was as a new representative. Bachman gave a puzzling answer: “My No. 1 goal is to not go to jail.”

Next week, February 5, 2013, we may finally understand why Representative Bachmann made that statement as the top donor in her first campaign for Congress goes on trial in Federal Court in St. Paul, Minnesota for his role as financier for the massive Ponzi scheme orchestrated by Tom Petters. Tom Petters was convicted in 2010 for his role in the Ponzi scheme and sentenced to 50 years in prison.

On April 20, 2011, convicted money launderer and cocaine/gun runner Frank Vennes Jr., a close personal friend and a major campaign contributor of Minnesota presidential candidates Michele Bachmann and Tim Pawlenty, was indicted on federal fraud and money-laundering charges for his alleged role in the Tom Petters Ponzi scheme.

The origins of this trial go back decades when Frank Vennes Jr. was charged in May 1987 and convicted in North Dakota on federal charges of money laundering, cocaine distribution, and illegal firearms sales, to which he pleaded guilty and no contest. He was sentenced to five years in prison. Vennes was sentenced to five years in the Sandstone (Minnesota) Federal Correctional Facility. He served thirty-eight months in prison; was released on parole on December 12, 1990; and completed his sentence on September 25, 1992. Vennes claims he found God in prison with the help of a prison ministry.

In subsequent decades, Frank Vennes found his criminal record was an impediment to his new role arranging financing for Tom Petters’ financial empire. Vennes asked several prominent politicians to help him expunge his criminal record by writing letters of support for a presidential pardon. These politicians also received hefty campaign contributions from Vennes, his business cohorts, family and friends. The timing of Frank Vennes’s largesse led many to speculate that it was part of a “pay-for-pardon” plot.

Court documents state that Vennes raised money from investors directly and also induced hedge funds to raise money from investors to purchase short-term, trade finance promissory notes in Petters’s company, PCI. In return, Vennes allegedly earned more than $105 million in commissions from 1995 to 2008. Prosecutors now claim the total take for Vennes may exceed $350 million. On September 24, 2008, federal agents raided Vennes’s $5 million Shorewood home on Lake Minnetonka in connection with the $3.5 billion Tom Petters Ponzi scheme and seized “boxes and buckets of silver and gold coins, trays of jewelry, five stacks of $100 bills, boxes of gem stones, silver plates and Rolex watches,” along with diamond rings and artwork. Two days later, Vennes’s $6 million oceanfront home in Jupiter, Florida, was also raided. Four years after the raid, Frank Vennes is finally getting his day in court.

In a pretrial document filed with the Federal Court February 14,2013, prosecutors argued that Frank Vennes' s three felony convictions for money laundering, gun and drug trafficking should be permitted as evidence at the trial in February with an instruction to jury that Vennes’s past criminal conduct won't be used by prosecutors to suggest an inclination by the defendant to commit crimes. Instead, the evidence will be necessary to explain the peculiar history of fraud and deceit at the heart of every transaction Vennes controlled between co-defendant James Fry's Arrowhead hedge funds and Petters Company Inc. (PCI). In addition, it became necessary for the Vennes and Fry to conceal his criminal record from investors. Normally, prior convictions are precluded as prejudicial to juries.

In previous proceedings before a magistrate judge, Government attorneys successfully argued that Frank Vennes' prior convictions are an integral part of the alleged crimes Vennes and Fry are currently being charged.

In a pretrial document submitted to the Court January 23, 2013, attorney for Frank Vennes, Jim Volling made a last-ditch argument to have his client's 26-year-old prior felony convictions excluded from the trial. Volling goes on to disclose his strategy to counter the prejudicial evidence of his client's past criminality- he will call on additional evidence and character witnesses – as many as 45 witnesses testifying to Frank Vennes's "good acts" and rehabilitation. Whether Mr. Volling is referring to letters supporting a pardon for Mr. Vennes written by former Senator Norm Coleman and Representative Michele Bachmann remains to be seen, but there is no doubt that those letters and witnesses would be powerful evidence.

In their recently released trail brief, the Government stated they may ask the character witnesses about "...specific instances of the defendant’s past conduct relevant to the character trait at issue. In particular, a defendant’s character witnesses may be cross-examined about their knowledge of the defendant’s past crime..."

A Bachmann quote from her letter to the Pardon Attorney supporting a pardon for Vennes (see letter at the end of this diary):

As a U.S. Representative, I am confident of Mr. Vennes’ successful rehabilitation and that a pardon will be good for the neediest of society. Mr. Vennes is seeking a pardon so that he may be further used to help others. As I know from personal experience, Mr. Vennes has used his business position and success to fund hundreds of nonprofit organizations dedicated to helping the neediest in our society....
If Bachmann is called as a character witness by the defense, will prosecutors ask her what she knew about Vennes from "personal experience"? She can't say she lied in her letter; her letter was addressed to an Assistant U.S. Attorney... and lying to a Federal law enforcement officer is a felony offense - just ask Martha Stewart who was fined and sent to a Club Fed for that crime.

Read a summary of the Government's recently released, 52-page trial brief at the Vennes Info blog.

See the interactive Frank Vennes Pardon Timeline at Dipity.

Much of the research for this diary comes from “The Madness of Michele Bachmann” by Ken Avidor, Karl Bremer and Eva Young, published by Wiley & Sons.

Additional information about the investigation and trial of Frank Vennes can be found at the Ripple in Stillwater blog:

Bachjmann Pardon signature photo Pardon_Bachmann_Complete.jpg

Monday, January 28, 2013

Government Intends to Introduce Audio & Testimony of Religious Affinity Fraud

According to a pretrial document released today, some of the government’s witnesses are going to testify that they trusted Vennes because he prayed with them.

Some witnesses will testify that they failed to pursue due diligence in part because of his ardent professions of faith - if they asked questions about PCI, he treated the questions as evidence of a lack of faith.

Although they are not charging Frank Vennes with "affinity fraud",  that's what it's called:
Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are - or pretend to be - members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.

These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies, and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.

Many affinity scams involve "Ponzi" or pyramid schemes, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors - when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone.
Here's some audio of a talk in 4 parts of  Frank Vennes mixing God & money:

The Prosecution Releases Trial Brief

Government attorneys released its summary of the criminal case against Frank Vennes and co-defendant James Fry. In an overview of their case, Assistant United States Attorneys Timothy Rank, Kimberly Svendsen and Robert Lewis claim Frank Vennes was the primary source of funds for the massive Ponzi scheme orchestrated by Tom Petters and the company at the heart of the scam Petters Company, Inc. (“PCI”).

Frank Vennes raked in millions from his role as financier for the Petters Ponzi scheme. Vennes made more than $100 million from interest derived from individual investors. He received commissions from To Petters totaling more than $100 million, including $60 million related to the Palm Beach hedge funds unds and $48 million related to the Arrowhead hedge fund.

The Government traces the role of Frank Vennes back to 1995, only a few years after Vennes was released from a Club Fed at Sandstone, Minnesota. In a classic case of affinity fraud, Vennes began by borrowing money from people he met in the prison ministry that visited in prison.

Petters and Vennes needed to raise more money for their scheme, so Vennes tried to get funding from banks and other institutional lenders, but the lenders balked at lending to Vennes because of his criminal record. Vennes met James Fry in 1998. Fry managed an investment company. Arrowhead Capital Management, which had hedge funds invested primarily in medical device companies. Vennes was the go-between for Arrowhead's investments in PCI and for nearly eight years, Fry shoveled hundreds of million of dollars from investors into the gaping maw of PCI for the purpose of financing the purchase of consumer goods which Petters supposedly sold at a profit - the transactions did not exist. Fry lied to his investors about the transactions and Vennes knew Fry was lying to his investors.

Eventually, the relationship between Vennes and Fry "soured" when Fry tried and failed to deal directly with Tom Petters. Vennes recruited Bruce Prevost and David Harrold to help him find more money for PCI. In 2002 Prevost and Harrold created the Palm Beach Funds. They also were required to invest in PCI through Frank Vennes and could only contact Tom Petters through Vennes. As with Arrowhead, Vennes was aware that Prevost and Harrold were lying to investors (Prevost and Harrold have pled guilty).

Vennes also used his company Metro to attract investors to PCI. Vennes is also alleged to have lied to a bank to obtain a multi-million dollar line of credit.

The Government also charges James Fry with lying to the SEC about being unaware that Arrowhead funds were not paid directly from retailers and claiming he was unaware of marketing materials with false information.

The Government states that they are not out to prove that Vennes and Fry knew the full extent of the Ponzi scheme at the heart of PCI. The indictment, however claims Vennes and Fry's lies prevented investors from being able to doing due diligence on where their money was going. Vennes and Fry are alleged to have lied to investors by telling them that the Arrowhead and Palm Beach Funds were getting paid directly by the big box stores like Costco or Sam’s Club, which gave investors as if there were real transactions underlying the PCI investments. The funds Vennes and Fry controlled never received a single payment from a retailer. Payments on the PCI promissory notes came from PCI, which was, of course a Ponzi scheme paying old investors with money obtained from new investors. The PCI Ponzi scheme continued to grow until it inevitably collapsed.

The Government also seeks to prove the defendants concealed from investors Vennes’s role the transaction. They were aware that Vennes’s criminal history (money laundering, firearms and narcotics trafficking convictions) would make it difficult to raise money from institutional investors.

Vennes is charged with eight counts of aiding and abetting securities fraud, seven counts of aiding and abetting wire fraud, three counts of aiding and abetting mail fraud, three counts of bank fraud, two counts of making false statements on a credit application, and three counts of money laundering.

Fry is charged with five counts of aiding and abetting securities fraud, four counts of aiding and abetting wire fraud, and three counts of making false statements to the Securities and Exchange Commission.

The Government's brief goes on to relate the early history of Frank Vennes, much as I have transcribed in this Vennes Info post.

The brief goes on to describe some close calls in 2002 for the alleged scamsters when a bank, an Arrowhead employee and caught a whiff of the fraud. Sadly, the information was buried and Vennes and Fry continued to raise money without mentioning it to investors.

The prosecutors give a preview of the testimony of Harrold and Prevost with a glimpse of how Vennes impressed his clients with his ostentatious home and lifestyle as well as an anonymous donation of a million dollars (of other people's money) to a religious institution.

The brief goes on to describe the unravelling of the Petters Ponzi scheme in 2007 and how Vennes scrambled to conceal the inability of PCI to make good on its obligations. to pay investors - by May 2008, the PCI notes held by Metro Gem were being paid more than 50 days after they went into default. Vennes was using new investor money to pay off old investors (“lulling payments”). It got so bad by August, 2008 that Vennes used hundreds of thousands of dollars from "investor C.H." that was supposed to be invested in PCI, but was instead used to pay for his mortgage on two of his mansions, as well as car payments, credit card payments, and “lulling” interest payments to other Metro Gem investors.

The brief also addresses witness and evidentiary issues. Among the more interesting bits of information is that emails and other correspondence from Metro Gem and Arrowhead employees will be introduced as evidence. - including "prior statements" emails and correspondence from Craig Howse, Frank Vennes's attorney.

More interesting is the Government's position regarding character witnesses. They may ask about "...specific instances of the defendant’s past conduct relevant to the character trait at issue. In particular, a defendant’s character witnesses may be cross-examined about their knowledge of the defendant’s past crime..."

In anticipation of a defense use of the post-fraud, post-raid efforts of Vennes to mollify his victims with a voluntary receivership (see this Ripple in Stillwater post), the Government seeks to exclude that evidence as irrelevant and distracting from the charges and likely prolonging the trial. The trial begins a week from today - stay tuned.

Thursday, January 24, 2013

Vennes Attorney Warns Prosecutors Use of Prior Conviction Will Be Countered With "Numerous Additional Witnesses and Exhibits"

In a pretrial document submitted to the Court yesterday, attorney for Frank Vennes Jim Volling made a last-ditch argument to have his client's 26-year-old prior felony convictions excluded  from the trial. Volling goes on to disclose his strategy to counter the prejudicial evidence of his client's past criminality- he will call on additional evidence and witnesses testifying to Frank Vennes's "good acts" and rehabilitation. Whether Mr. Volling is referring to letters supporting a pardon for Mr. Vennes written by former Senator Norm Coleman and Representative Michele Bachmann remains to be seen, but there is no doubt that those letters and witnesses would be powerful evidence in the hands of a good defense attorney.

In another motion, Volling also asked the Court to exclude other evidence of the character of Frank Vennes he deemed prejudicial. Also included is a  document with redactions from a lawsuit Frank Vennes filed in 1996.

Wednesday, January 16, 2013

Remembering Karl Bremer - Journalist Who Investigated Frank Vennes

Nearly a year ago, my colleague, co-author and friend Karl Bremer was diagnosed with pancreatic cancer. I am sad to report that Karl passed away yesterday.

Much of the research  I draw from on this blog comes via Karl  Bremer's articles at the Minnesota Independent, Dump Bachmann and  his Ripple in Stillwater blog. Much of Karl's award-winning research about Frank Vennes is also included in "The Madness of Michele Bachmann" (Wiley & Sons, 2010).

Karl Bremer also took one of the few recent photos of Frank Vennes taken in from of the Federal Courthouse in St. Paul (see below).

My thoughts and condolences go out to Karl's family and many friends.

Articles & posts about Karl Bremer:

Firedog Lake: "Ave Atque Vale, Karl Bremer" - Phoenix Woman

Pioneer Press: "Obituary: Stillwater journalist Karl Bremer dies" by Mary Divine.

Star Tribune: "Obituary: Blogger Karl Bremer kept Stillwater on its toes" Kevin Giles.

Stillwater Patch: "Ripple in Stillwater Writer Karl Bremer Dies" - Shawn Hogendorf

FDL: "Come Saturday Morning: Here’s to You, Karl Bremer" - Phoenix Woman (February 18, 2012)

Star Tribune: "Stillwater-based political blogger keeps ire stoked" - Kevin Giles (February 20, 2012).

Karl Bremer's photo of Frank Vennes 

Thursday, January 10, 2013

Prosecutors Claim Frank Vennes Made Over $350 Million From the Petters Ponzi Scam

In a pretrial document filed yesterday, Federal prosecutors claim Frank Vennes made over $350 million working with Tom Petters. At issue was a defense request to exclude photos of the posh homes once owned by Vennes, valued at $6,000,000 and $4,850,000, The Government alleges Vennes purchased the mansions to impress investors.

There's a little sketch of one of the mansions of Frank Vennes on this map showing the mansions that used to belong to some of the Petters Ponzi cohorts - click on map to make it bigger: