Monday, February 11, 2013

When Did Frank Vennes First Learn About the Fraudulent PCI Notes?

When Frank Vennes pled guilty February 1st, he claimed he did not know of the Petters fraud until September of 2008 (I don't have access to a transcript, but my notes say Septermber 25, 2008). Federal agents raided the homes of Frank Vennes on September 24, 2008.

The Star Tribune reported back in 2009:
Frank Vennes Jr., a Shoreview businessman who recruited investors for Tom Petters, learned that the operation might be a fraud scheme in December 2007...

Thursday, February 7, 2013

MN DOJ Posts the Frank Vennes Plea Agreement Online

Download the PDF for the February 1st plea agreement signed by Frank Vennes HERE.

I've opened up the comments again - please keep it nice. Comments aren't working, sorry.

Tuesday, February 5, 2013

The Trial of James Fry Postponed

The trial will instead begin Tuesday, May 14, 2013, at 9:00 a.m., in Courtroom 7A, Warren E. Burger Federal Building and United States Courthouse, 316 North Robert Street, St. Paul, Minnesota.

Frank Vennes will likely be called to testify.

The May 14th trial will, in effect be the trial of Frank Vennes that should have begun today but with some key differences. Frank Vennes will not have a choice about testifying. Frank Vennes will likely be sentenced before May 14th losing his 5th Amendment rights.

And Frank Vennes will face being interrogated by awesome, Super-Lawyer Joe Friedberg:

Monday, February 4, 2013

Fry's Attorney Wants to Question Vennes at His Client's Trial

As if last week's sudden turn of events weren't surprising enough, today's hearing took a bizarre twist.

I walked over to the Federal courthouse this afternoon expecting to watch Frank Vennes's co-defendant James Fry plead guilty, but that was not the case as James Fry was not in attendance. Fry's attorney Joe Friedberg asked for a continuance in light of the changed landscape. Friedberg claimed the Government was being unfair "right up to the due process line".

Friedberg claimed the Government's case implied Fry had knowledge of the Ponzi scheme at the heart of PCI.

Freidberg insisted on being able to question Vennes before the jury about the charges against his client.

Friedberg rejected the Government's contention that their witnesses could supply the necesary testimony regarding the specific charges against Fry saying such testimony was hearsay and that only Vennes had "a monopoly of knowledge".

In  particular, Friedberg pointed to the Government's evidence regarding how Fry and Vennes allegedly used  Vennes's quest for a presidential pardon to lull potential investors concerns. Friedberg said:
"Vennes told my client Michele Bachmann supported his pardon to the White House" 
Friedberg was also concerned that Vennes would still be covered by Fifth Amendment protections against giving testimony that could incriminate himself.

The Government asked for a short continuance of a few weeks, Friedberg asked for months.

The judge said he'd rule on a continuance this week.

Clearly, this trial has entered a new phase... stay tuned.

MInnPost Article on the Long Strange Journey of Convicted Fraudster Frank Vennes

A must-read article in MinnPost:"Frank Vennes and the Petters Ponzi scheme: a long, mysterious tale" by Beth Hawkins.

Friday, February 1, 2013

Frank Vennes to Plead Guilty

Just learned it.

I will update this post after the hearing in an hour or two.

UPDATE: Vennes pled guilty to two counts. Will cooperate. Out on bond awaiting sentencing.

UPDATE:  The MN DOJ Press release:

Frank Vennes pleads guilty to lying to investors in Petters’ Ponzi scheme

MINNEAPOLIS—Late this afternoon in federal court in St. Paul, a business associate of Thomas J. Petters, the Minnesota businessman convicted in 2009 of orchestrating a $3.65 billion Ponzi scheme, pleaded guilty to fraudulently raising money from individuals and through hedge funds for investment in Petters Company, Inc. (“PCI”). Frank Elroy Vennes, Jr., age 55, of Stuart, Florida, was charged on July 11, 2011, in a Second Superseding Indictment. Appearing today before United States District Court Judge Richard H. Kyle, he specifically pleaded guilty to one count of securities fraud and one count of money laundering. 
Following the plea hearing, U.S. Attorney B. Todd Jones said, “This case exemplifies one of the highest priorities of this office — protecting our citizens from financial fraud. Because of the tremendous dedication of this office and our investigative partners, we successfully constructed a very strong case. We were able to convict Tom Petters, the biggest fraudster in Minnesota history, who is now serving a 50-year sentence in Leavenworth. We also successfully prosecuted many of his associates, and today, yet another individual pleaded guilty. We are taking action to recoup the financial losses suffered by so many because of this fraud and know the court will appropriately sentence Mr. Vennes for his related crimes.” 
FBI Special Agent in Charge Chris Warrener added, “This guilty plea today symbolizes the ongoing joint efforts between the FBI, the U.S. Attorney’s Office, IRS-CI, and the U.S. Postal Inspection Service to combat significant fraud in the State of Minnesota. It also reflects our continued joint commitment to ensuring that those responsible for the Petters fraud are held accountable.” 
From 1995 through September of 2008, Vennes and his company, Metro Gem, obtained money from others for investment in PCI notes. He also assisted in the formation of hedge funds, known as the Arrowhead Funds, to help raise additional investment funds for that same purpose. Beginning in 2001 and proceeding through September 24, 2008, he knew that individuals associated with the Arrowhead Funds were making misrepresentations and omissions to investors regarding investments in PCI, and he aided and abetted in those misrepresentations. 
“This complex investigation shows that the appearance of success can be a mask for a tangled financial web of lies,” said Kelly R. Jackson, Special Agent in Charge of the St. Paul Field Office of the IRS-CI. “Ponzi schemes can thrive for a long time because of the false representations about the investments that were made to investors. But that time is gone, and as Mr. Vennes’ plea shows, it’s time for those responsible to face judgment.” PCI was owned and operated by Tom Petters, who, in or before 1993, initiated the Ponzi scheme by representing that funds invested in PCI promissory notes would finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would resell that merchandise for a profit to certain “big box” retailers, including Sam’s Club and Costco. In truth, however, no merchandise was bought or resold. Instead, Petters diverted hundreds of millions of dollars for his own benefit and the benefit of his co-conspirators.
Petters’ Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business offices as well as other locations. He was subsequently prosecuted in federal court in the District of Minnesota and, in April of 2010, was sentenced to 50 years in federal prison. He is currently serving his sentence in the federal penitentiary in Leavenworth, Kansas. 
In his plea agreement, Vennes admitted that he raised funds for investment in PCI notes through third-party agents, particularly after 1998. Because he had a federal criminal record, having been previously convicted on federal narcotics, firearms, and money laundering charges, he had difficulty obtaining funding on his own. As a result, he regularly worked through others, especially when trying to solicit money from banks and institutional investors. Arrowhead Capital Partners II, L.P. and Arrowhead Capital Finance, Ltd., collectively known as the Arrowhead Funds, were among those third-party agents. 
From 1999 through September 2008, all paperwork and communication between PCI and the Arrowhead Funds went through Vennes or one of his employees. At the same time, Vennes received “commissions” from Petters for brokering deals involving the Arrowhead Funds. His commissions were based on the amount of money he raised for Petters and PCI. Between 2001 and 2008, Vennes received more than $48 million in commissions.

During that same time period, Vennes knew that those acting on his behalf were making material misrepresentations and omissions to investors in the Arrowhead Funds and did nothing to correct the situation. Investors were told, for example, that whenever a retailer purchased consumer electronics or other goods from PCI, those products were paid for by the retailer with funds directly deposited into a bank account under the control of a management company. Thus, investors were falsely assured that all PCI transactions were, in fact, taking place, and all money was secure. However, Vennes, among others, was well aware that no payments were ever received from retailers and, instead, came from PCI alone. Furthermore, investors were never informed of Vennes’ criminal record or his involvement in the Arrowhead Funds’ transactions. And, finally, they were kept unaware that in late 2007 and early 2008, the PCI Notes held by the Arrowhead Funds were delinquent and were approaching default. Instead of disclosing that information to investors, Vennes and others arranged to secretly extend the due dates on the notes, the intent being to conceal the payment problems and to lull investors into believing their investments were secure and performing well. 
Vennes’s co-defendant in this case, James Nathan Fry, age 59, of Orono, Minnesota, was charged with five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the U.S. Securities and Exchange Commission during its investigation of investments in PCI by hedge funds under the management of Fry’s company, Arrowhead Capital Management. His trial is scheduled to begin on February 5, 2013. For his crimes, Vennes faces a potential maximum penalty of ten years in prison on the money laundering count and five years on the securities fraud count. Judge Kyle will determine his sentence at a future hearing, yet to be scheduled. 
If convicted, Fry faces a potential maximum penalty of 20 years on each wire fraud count and five years on each securities fraud and false statement count. Two Florida hedge fund managers have pleaded guilty to committing fraud in connection to this scheme by making material misrepresentations to investors in their hedge funds concerning investments in PCI. David William Harrold, age 53, of Del Ray Beach, Florida, and Bruce Francis Prevost, age 52, of Palm Beach Gardens, Florida, await sentencing, each on four counts of securities fraud. 
This case is the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigations, and the U.S. Postal Inspection Service. It is being prosecuted by Assistant U.S. Attorneys Timothy C. Rank, Kimberly A. Svendsen, and Robert M. Lewis. This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive attack on financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement, who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force hopes to improve efforts across the federal executive branch, and, with state and local partners, investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.