Was Frank Vennes' Son a White House Intern at the Same Time His Father Sought a Presidential Pardon?

(Cross-posted from Dump Bachmann)

New evidence has surfaced that sheds some light on the roles of Denley and Colby Vennes in their father Frank's quest for a presidential pardon. A schedule of payouts to the two from the bankrupt Palm Beach Funds suggests that money from the Petters Ponzi may have been the source of political contributions made by the Vennes brothers when they were both students. And it appears Denley even spent some time inside the White House itself as an intern in 2004 while Frank was in hot pursuit of a pardon from President George W. Bush.

Denley Vennes, "LiquidElk" on the Deviant Art website has a portfolio of photos which includes a photo with this caption:

Election Day 2004. Marine One just landed on the south lawn of the White House. A Marine exits the chopper before the President.

Another Deviant Art member asked how he was able to take the picture, Denley Vennes replied:

Thanks! I was interning at the White House at the time so I had the privilege of being there with the press.

We checked around and found this photo from the George W. Bush White House archives:



Just behind President Bush and VP Dick Cheney is an intern that looks remarkably like the photo of Denley Vennes on his Deviant Art page.

We've created this side-by-side comparison using a higher resolution version of the intern photo - what do you think?



If Denley Vennes was an intern in 2004, that would put him close to the very man who could wipe his father's record clean of the felony convictions that kept him from raising more money for the Petters Ponzi scheme (for more about this, read Karl Bremer's three-part series on the effort to win a pardon for Frank Vennes including a timeline of donations and events relating to the Vennes request for a pardon Parts One, Two & Three).

In a search warrant issued in 2009, a U.S. Postal Inspector sought access to two email accounts used by both Frank Vennes and his son Denley. According to the affidavit, Frank Vennes allegedly used the Yahoo accounts to send information to investors (see Strib article). Frank Vennes is currently under indictment for his role as financier of the Petters Ponzi scam, The Vennes trial is scheduled for May of next year.

It should also be noted that Denley Vennes contributed $2,000 to the Bush/Cheney campaign in 2003 (brother Colby also donated $2K). In 2004, Denely Vennes donated $2,000 to the campaign of Patrice Bataglia, a Republican candidate who ran against Betty McCollum in the 3rd Congressional District. In both years, Denley Vennes lists his occupation as student. In 2004, Denley said he was a student at Northwestern Bible College. Denley's father Frank was on the board of Northwestern and donated thousands of dollars to the college. The trustee for the Palm Beach Finance bankruptcy is currently clawing back the Vennes contributions to Northwestern. For more about Northwestern and Frank Vennes, read "Northwestern College Trustee Fracas" at the Petters Info blog.

According to a complaint filed in U.S. Bankruptcy Court in Florida November 23rd. Denley Vennes apparently received more than four hundred thousand dollars of his father's allegedly purloined largesse and the Palm Beach Finance trustee is clawing that back too (additional clawback complaints go after other Vennes family members and associates who have sprinkled campaign contributions along the Frank Vennes pardon trail - see interactive timeline at Dipity).

Since the trustee filed a clawback for Ponzi money donated to Bachmann, it is possible some of the following contributions might be clawed back as well:

George Bush/Dick Cheney Presidential Campaign (2003, 2004):

COLBY VENNES - $2000
DENLEY VENNES - $2000

NORMA VENNES - $2000
GREGORY VENNES - $2000
STEPHANIE VENNES - $2000
KIMBERLY VENNES - $2000

Minnesota Republican Party (2003):

COLBY VENNES - $1500

Patrice Bataglia Campaign (MN3CD) (2004):

DENLEY VENNES - $2000
COLBY VENNES - $2000

(Karl Bremer helped research and write this article)

Breaking: Clawbacks in Palm Beach Finance Bankruptcy Snare Bachmann Campaign Also Vennes Family & Associates

Cross-posted from Dump Bachmann:

Breaking News: An "adversary" case was filed November 29th against Michele Bachmann, Bachmann for Congress, and Bachmann Minnesota Victory Committee. The court action [not confirmed] is most likely in relation to contributions from Frank Vennes, family and associates. Other recent, related clawback cases have been filed against Vennes family members and associates of Frank Vennes. Some of the parties mentioned in the complaints contributed heavily to political candidates including Michele Bachmann [see Karl Bremer's three-part series on the effort to win a pardon for Frank Vennes including a timeline of donations and events relating to the Vennes request for a pardon Parts One, Two & Three].

This action is a part of the effort to clawback assets by the bankruptcy trustee for Palm Beach Finance Partners one of the feeder funds for the Petters Ponzi scheme. The two Palm Beach funds managers David W. Harrold, Bruce F. Prevost, associates of Frank Vennes were indicted April 20, 2011 along with Vennes for fraud. Harrold and Prevost pled guilty April 21st.

Other clawback actions include business associates of Vennes including Darrel Amiot who is mentioned in a lecture by Frank Vennes [listen to an Amiot sermon here] Another case was filed against Larry Greely, an associate of Amiot.

Another action goes after the Fidlelis Foundation. Vennes sat on the board of Fidelis Foundation has its office next to the law office of Howse and Thompson.

Another complaint was filed against CitySites Urban Media, Inc., North Dakota Teen Challenge, Inc., Minnesota Teen Challenge, Inc., KidsFirst Scholarship Fund of Minnesota, Desiring God Ministries, Prison Fellowship, Trinity Christian School, Crown Financial Ministries, Inc., Great Commission Foundation, Inc., New Life Family Services, Northwestern College, Masterworks of Minneapolis, Inc., Metro Hope Ministries, Inc., Smithtown Gospel Tabernacle, Inc., T-Net International, Wheaton College, Billy Graham Center, Seg-Way Ministries, International Ministerial Fellowship, Williston Assembly of God.

Some of these institutions have close connections to Frank Vennes. Vennes served on the boards of Minnesota Teen Challenge and Northwestern College. Some of these institutions, like the Desiring God ministry (whose Pastor John Piper wrote about an anti-homosexual-tornado) and Minnesota Teen Challenge were involved in the strange saga of Hope Commons.

Another complaint was filed the 23rd against Grace Consulting of Southeast, Inc. run by Frank Vennes brother and Bachmann donor Gregory Vennes who was sued by investors in 2008 for alleged seven counts of fraud and misrepresentation (the suit was settled).

Complaints were also filed against family members Norma Vennes, Colby Vennes and Denley Vennes seeking funds that are alleged to have been fraudulently transferred from Metro Gem, one of several feeder funds for the Petters Ponzi scheme managed by Frank Vennes.

This is a developing story - stay tuned for updates.

UPDATE 1: Karl Bremer has more at Ripple in Stillwater:

The long arm of the Tom Petters Ponzi scheme clawback has reached out for Congresswoman Michele Bachmann in an effort to recover $27,600 in contributions to her congressional campaign from Petters associate and Bachmann friend, convicted money launderer Frank Vennes Jr.

The move came in an "adversary case" complaint filed in U.S. Bankruptcy Court proceedings in the Southern District of Florida for the Palm Beach Funds. These were Palm Beach, FL- and offshore-based hedge funds allegedly used by Vennes to steer billions of dollars into the Petters Ponzi.

Barry E. Mukamal, liquidating trustee for the bankrupt Palm Beach Funds, filed the action November 29 against Michele Bachmann, Bachmann for Congress, and Bachmann Minnesota Victory Committee. It identifies seven contributions to Bachmann’s congressional campaigns made between December 2005 and June 2008 that it seeks to recover for the Palm Beach Fund creditors. Based on Federal Election Commission records, those contributions were made by Frank Vennes Jr. and his wife, Kimberly.

Read the whole thing.

This report is a joint investigation by Ken Avidor and Karl Bremer. For more information on Bachmann and Vennes go to the Ripple in Stillwater blog and the Vennes Info blog. Read about Bachmann's relationship to Frank Vennes in the new book "The Madness of Michele Bachmann".

Co-Author of "The Madness of Michele Bachmann" Karl Bremer Sues The New Republic Over Purloined Photo of Fleeing Felon Frank Vennes

Mary Divine in the PiPress:

Stillwater Township writer and photographer Karl Bremer is suing the New Republic magazine for "unfair competition," claiming they used a photograph he took of Frank Vennes Jr. on their cover without his permission.

Bremer, who writes the Ripple in Stillwater blog, has sued the Washington, D.C.-based magazine in Washington County District Court. He is asking for $5,000 in damages.

Vennes was linked to the Tom Petters' Ponzi scheme, accused of using false documents to entice investors to invest money with Petters and his various companies.

Bremer, one of the authors of "The Madness of Michele Bachmann: A Broad-Minded Survey of a Small-Minded Candidate," claims the magazine stole his Vennes photograph from his website and "used it on the cover of their national magazine without my permission to unfairly compete against me in the literary marketplace," according to the lawsuit.

Read the whole thing.

Dump Bachmannn reported on this back in October - read "Attention National Reporters: Please Stop Plagiarizing Our Work".



(Cross-posted at Dump Bachmann)

Greg Vennes 2008 Lawsuit Complaint Alleged "Fraud" and "Misrepresentations"

One of the missing pieces remaining in the complex jigsaw puzzle of the Petters Ponzi scheme is Frank's brother Gregory. Greg and his wife's political donations are sprinkled along the trail of his brother's campaign to win a presidential pardon (see Lawyers Guns & Money, Pt. 2 at Ripple in Stillwater). Until now, Greg Vennes was as much a mystery man to me as his brother Frank.

In a complaint filed in the December 10th, 2008, lawyers for two plaintiffs alleged seven counts of fraud and misrepresentation. The counts included allegations of violations of securities laws. According to the complaint, Greg Vennes acted as a go-between for his brother's hedge fund Metro Gem and two wealthy investors.The complaint alleges Greg received a commission for the transaction. Greg Vennes was not a registered securities broker. The complaint sought damages in excess of $5,500,000.

In a separate document, Greg Vennes, through his attorney admitted he received payment from Metro Gem, but denied having an arrangement. Vennes also admitted not having a license to sell securities.

In a January 7, 2009 affidavit seeking a protective order and a stay of discovery, Greg Vennes told his side of the story beginning in 2000 when he moved back to Minnesota with his family. Greg had worked in the U.S. Postal Service for 19 years prior to his arrival on the swanky shores of Lake Minnetonka. Greg befriended two elderly neighbors and they swapped investment tips. Greg told the old gents that he had a company called Grace Consulting Services Inc. (remember that name). Greg also said his company invested in notes from a company owned by brother Frank, Metro Gem Inc. Frank said his investment in Metro Gem was "proving successful", however Greg claimed he did not speak for his brother and had no idea how Metro Gem operated. The Grace Consulting investments were reinvested at a higher rate in Metro Gem.

According to Greg's affidavit, in 2003, the first distinguished representative of the Minnetonka gentry Greg had befriended invested in Metro Gem and saw his investment grow (on paper) to $3.5 million, earning 12% annually. In 2003, the other old gent plopped down $2 million for Grace Consulting Inc. notes. Later in 2007, the second fellow transferred his investment from Grace Consulting to Metro Gem. According to Greg, he had a quarrel with his brother in February, 2008 over the care of their elderly parents and Greg took Grace Consulting's money out of Metro Gem. About six months later, the FBI raided brother Frank's homes along with Tom Petters' homes and business. The two elderly gents saw their investments swirling down the Petters Ponzi crapper along with billions of other investors' dollars.

One of the old gents died in May, 2009 (according to his Strib obituary, he " suffered from dementia for the past few years") and The lawsuit was settled by the end of 2009. The other fellow was listed among the creditors seeking relief in Frank's Work-Out Plan. No trial, no verdict, end of story.

But… here's something interesting - remember that company Grace Consulting Services Inc.? There's another company called Grace Consulting of Southeast Inc. registered in Florida. Incidentally, Greg's wife Stephanie donated $4,200 to Michele Bachmann in 2005 and she was just a secretary - how freaking' successful does a company have to be to have its secretaries throwing thousands of dollars at politicians!

Anyways, back in 2008, before Grace Consulting of Southeast Inc. changed its address, the company's registered address was 752 S.W. Squire Johns Lane Palm City, FL 34990.

Google that address and you get all kinds of links to stuff having to do with a guy called Jason Bo-Alan Beckman. Who he?

Strib:

Jason Bo-Alan Beckman, a brash Wayzata money manager who has claimed to be among the top financial advisers in the nation, was civilly charged Monday with participating in an elaborate $194 million investment fraud.

Beckman, 41, was an associate of Trevor Cook, an Apple Valley man who pleaded guilty last year to bilking about 1,000 investors in the $194 million Ponzi scheme. Cook, 38, was sentenced in August to 25 years in prison.

Lawyers for the Securities and Exchange Commission said Beckman raised at least $47.3 million from 143 individuals, of which only $8.2 million was returned to investors.

The government complaint says Beckman and his wife personally received $7.8 million from the illegal operation and used the funds to pay for "million dollar homes, luxury cars, foreign travel, country club expenses, a suite at professional hockey games and other trappings of a high-end lifestyle."

Holy cow, what an awesome coincidence! The house had two owners… BOTH linked to Ponzi schemes in Minnesota!

For more fun, read Patrick Pretty's 3/26/11 article on the property where the following pic of the Ponzi palazzo is from:

(more pics on this PDF doc)


Here's the docs - click to make them bigger:

SEC Takes Action Against Petters Ponzi Fund Feeders Fry and Palm

Michelle Palm pled guilty in April. James Fry was indicted and facing trial along with Frank Vennes. The following is from a press release from the SEC (the complaint is here)

The SEC alleges that James N. Fry of Long Lake, Minn., Michelle W. Palm of Edina, Minn., and Fry’s firm Arrowhead Capital Management LLC invested more than $600 million in hedge fund assets with Petters while collecting more than $42 million in fees. Fry, Palm, and Arrowhead falsely assured investors and potential investors that the flow of their money would be safeguarded by the operation of certain collateral accounts when, in fact, the process did not exist as described. When Petters was unable to make payments on investments held by the funds they managed, Fry, Palm, and Arrowhead concealed Petters’s inability to pay by entering into secret note extensions with Petters.

This is the fourth enforcement action that the SEC has brought against hedge fund managers that collectively fed billions of dollars into the Petters fraud. The SEC previously charged Petters and froze the assets of an Illinois-based hedge fund manager who was a $2 billion feeder to his scheme, charged two Florida-based fund managers who facilitated the scheme, and blocked an attempt by a Connecticut-based hedge fund manager to divert funds from victims of the scheme.

“Fry and Palm presented themselves as protectors of their hedge fund investors when in fact they were facilitators of the Petters Ponzi scheme,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “Arrowhead’s promises were filled with lies and deceit, and as a result investors lost more than $600 million dollars while Fry pocketed millions in fees.”

According to the SEC’s complaint filed in the U.S. District Court for the District of Minnesota, Petters promised investors that their money would be used to finance the purchase of vast amounts of consumer electronics by vendors who then re-sold the merchandise to “Big Box” retailers including such well-known chains as Wal-Mart and Costco. In reality, Petters’s “purchase order inventory financing” business was a complete sham and amounted to nothing more than a Ponzi scheme.

The SEC alleges that Petters sold promissory notes to a number of hedge funds, including those managed by Fry, Palm, and Arrowhead. From as early as 1998 to June 2008, Fry, Palm, and Arrowhead funneled money into the Petters Ponzi Scheme by selling interests in the funds managed by Arrowhead to investors throughout the country. The funds, in turn, invested nearly all contributions into the Petters Ponzi Scheme and were holding more than $600 million worth of Petters’s notes when the Ponzi scheme collapsed.

The SEC’s complaint alleges that Fry, Palm, and Arrowhead falsely assured investors that the inventory financing transactions were structured in such a way that after the retailers received their merchandise from vendors, they would send their payments for the merchandise directly to the funds’ collateral accounts to pay off the notes held by the funds. In reality, money for the repayment of notes held by the funds always came directly from Petters and never came from any retailers. Fry and Palm did not disclose this material fact to investors in the funds, and instead continued to lie about the operation of the collateral accounts.

According to the SEC’s complaint, Fry, Palm, and Arrowhead hid the fact that Petters was on the verge of defaulting on certain of the notes held by the funds by engaging in a series of secret note extensions with Petters beginning around February 2008. While holding the Petters notes out as 90-day notes, the funds were holding a group of notes that were so far past due that they were on the verge of their 182-day default date. In order to hide that fact and help Petters avoid default, Fry, Palm, and Arrowhead secretly extended the due dates on these notes without ever informing investors in the funds.

The SEC alleges that Fry, Palm, and Arrowhead distributed pitch books to investors and potential investors that falsely represented that independent accountants were conducting quarterly examinations of the funds’ transaction procedures. In reality, no such examinations were conducted and Fry, Palm, and Arrowhead knew it.

The SEC’s complaint charges Fry, Palm, and Arrowhead, with violations of Section 17(a) of the Securities Act of 1933 and aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint charges Fry with direct violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; charges Arrowhead LLC with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206-4(8) thereunder. The complaint charges Fry and Palm with aiding and abetting violations of the Investment Advisers Act of 1940 and Rule 206-4(8) thereunder. The SEC seeks entry of a court order of permanent injunction against Fry, Palm, and Arrowhead, as well as an order of disgorgement, including prejudgment interest and penalties.

Both Fry and Palm have been charged criminally in connection with the same misconduct. Palm pleaded guilty to one count of securities fraud and one count of making false statements to SEC staff during investigative testimony. Fry pleaded not guilty to multiple counts of securities fraud, wire fraud, and making false statements to SEC staff during investigative testimony.

Read more at the Strib.

Click on comic to make it bigger:

Judge Kyle: Trial of Vennes and Fry Begins May 14, 2012

Because the defendants need more time to review the discovery and prepare pretrial motions and the trial itself, this is the new schedule:

JURY SELECTION will commence in this action on Monday, May 14, 2012, at 9:00 a.m., in Courtroom 7A, Warren E. Burger Federal Building and United States Courthouse, 316 North Robert Street, St. Paul, Minnesota. A JURY TRIAL will commence immediately thereafter, and continue from day to day until concluded...

Trial Date Hearing, New DOJ Document, New Republic Story on Vennes

Heard there was a hearing today before Judge Kyle, According to my sources (I wasn't there) the trial date is more certain - 2/6/12 (I will verify the date today).

UPDATE: Verified - Looks the trial date will be moved to May 14, 2012.

On Friday, the government entered a Bill of Particulars with more info regarding Fry's alleged lies to the SEC.

Also, Mariah Blake has an article about Petters and Vennes in the New Republic (subscription only).

NOTE: Much of the material in Blake's article will be familiar to readers of Ripple in Stillwater and this blog. Sadly, Blake does not attribute the source of her research which has already led one person on Twitter to think the saga of Tom Petters, Frank Vennes, et al is "untold" (and overstate the cost).

UPDATE: More about TNR's flawed article at Dump Bachmann.

Pre-Trial Hearing for Frank Vennes & Jim Fry

There was a hearing today for pre-trial motions for the Vennes trial scheduled for February of next year.

Karl Bremer was there and there will be a report soon at Ripple in Stillwater.

Vennes showed a lack of respect for the court, chewing gum and chuckling during the proceedings.

Among the motions considered today by Judge Keyes was a motion by defendant Jim Fry and his attorney Joe Friedberg asking the court to strike allegations from the superseding indictment that Fry concealed Vennes’s role in Arrowhead’s investors. The Government responded with this argument that mentions for the first time the campaign by Vennes to obtain an "expungement" of his record from the President of the United States:

In October of 2000, Fry represented to KPMG that “Vennes’ case is before the Executive Committee of the White House for expungement and complete discharge.” In December of 2000, Fry represented to both KPMG and the Bermuda Commercial Bank that “in the event that Mr. Vennes’ expungement has not been achieved to KPMG’s satisfaction prior to 31st December, 2000, that Arrowhead will cease from dealing with MetroGem.” KPMG agreed to stay on based on this representation. Vennes’s convictions were not “expunged,” and so Fry represented to KPMG in March 2001 that “ACF [Arrowhead Capital Finance, Ltd.] now deals direct with Petters and the previous arrangements involving MetroGem and Frank Vennes no longer apply.” This, of course, was false and designed to conceal Vennes’s involvement in the PCI transactions: while Fry had altered the transactions so that funds flowed directly from PCI to

Arrowhead, Vennes remained contractually in place controlling the deals and the communications between Arrowhead and PCI.
The government will also present additional evidence that Fry knew that disclosure of Vennes’s role and criminal convictions was material to investors. Indeed, an Arrowhead internal meeting agenda from early 2003, contains, under the heading “Goals,” the following items:

1. Eliminate any legal/operational process that puts Metro Gem in the trail of money flow (big investors will do background checks on all parties, thus stopping money flow if felony convictions are discovered)

2. Keep Metro Gem in the mix to obtain fee income on the amount invested

Here a couple of sketches I did in court today:

Vennes Lawyer Jim Volling Was Chair of Prison Ministry When Vennes Was Treasurer

James L. Volling, the attorney for Frank Vennes lists the following on his Faegre & Benson web page under "Civic Associations":

Charis of Minnesota, Inc. Board of Directors, chair

On the Charis prison ministry's IRS #990 form for 2003, Jim Volling is listed as the chairman and Frank Vennes is listed as the treasurer. The address of Charis is listed PO BOX 97. EXCELSIOR, MN 55331 is the same as Frank Vennes' allegedly fraudulent feeder-fund Metro Gem.

Jim Fry Arraignment Sketches

Jim Fry was arraigned today on fraud charges from the July 19th indictment

James Nathan Fry, age 57, of Orono, Minnesota, with five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the United States Securities and Exchange Commission during its investigation of investments in PCI by hedge funds under the management of Fry’s company, Arrowhead Capital Management.

Fry arrived in handcuffs and pleaded not guilty. He surrendered his passport. He's out on $100,000 bond. Trial in February.

MN DOJ: New Charges for Vennes, Another Hedge Fund Manager Indicted

Indictment HERE (PDF).

The DOJ Press Release (PDF):

More federal charges filed against Frank Vennes in Petters’ Ponzi scheme; another hedge fund manager also indicted.

MINNEAPOLIS—Earlier today in federal court, a superseding indictment was filed against Frank Elroy Vennes, Jr., a business associate of and primary fundraiser for Thomas J. Petters, the Minnesota business man who was convicted in 2009 of orchestrating a multi-billion dollar Ponzi scheme. The superseding indictment charges Vennes, age 53, of Stuart, Florida, with fraudulently raising money from individuals and through hedge funds to invest in Petters Company, Inc. (“PCI”). Vennes was specifically charged today with eight counts of securities fraud, two counts of mail fraud, six counts of wire fraud, three counts of money laundering, three counts of bank fraud, and two counts of making false statements on credit applications. He was originally charged with four counts of securities fraud and one count of money laundering, the original indictment returned against him on April 20, 2011.

The superseding indictment also charges James Nathan Fry, age 57, of Orono, Minnesota, with five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the United States Securities and Exchange Commission during its investigation of investments in PCI by hedge funds under the management of Fry’s company, Arrowhead Capital Management.

PCI was owned and operated by Tom Petters, who, in or before 1993, initiated his Ponzi scheme by representing that funds invested in PCI promissory notes would finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would then resell the 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 for his own personal benefit hundreds of millions of dollars. His $3.65 billion Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business offices as well as other locations. He was subsequently prosecuted and, in April of 2010, sentenced to 50 years in federal prison. He is currently serving his sentence in the federal penitentiary in Leavenworth, Kansas.

In 1995, Vennes, through his company, Metro Gem, Inc., allegedly began raising money for the purchase of PCI notes. Purportedly, from 1999 through September of 2008, Vennes engaged in approximately 748 transactions involving hundreds of millions of dollars of investors’ money to purchase PCI notes. As of September 24, 2008, approximately $130 million of Metro Gem investors’ money was invested in PCI.

In or around 1998, Vennes allegedly began seeking larger sources of financing for PCI, with Petters promising to pay him “commissions” for his work. Vennes previously had been convicted of federal narcotics, firearms, and money laundering charges, which made it difficult for him to obtain institutional financing. For this reason, he worked with others, including Fry, to form hedge funds, such as the Arrowhead Funds, in an effort to solicit institutional investments in PCI notes.

Fry’s company, Arrowhead Capital Management LLC, was a Minnesota business that acted as an investment advisor to a number of hedge funds known collectively as the Arrowhead Funds. He also served as president of Blue Point Management, Ltd., a Bermuda company that acted as the investment manager for Arrowhead Funds. As a result, Fry solicited money from investors and arranged all Arrowhead Funds’ investments in PCI notes. Between 1999 and September of 2008, Arrowhead Funds engaged in approximately 780 PCI transactions, through which Arrowhead Funds invested more than $500 million of investor’s money in PCI. As of September 24, 2008, approximately $130 million in Arrowhead Funds’ money was invested in PCI notes. All documentation for transactions between Arrowhead Funds and PCI passed through Vennes.

From 2001 through September of 2008, Vennes allegedly made more than $80 million related to Metro Gem investments in PCI notes. Fry made more than $41 million in fees from Arrowhead Funds’ investments in PCI notes, while Vennes also received “commissions” for all of the money invested in PCI through Arrowhead Funds, which allegedly netted him more than $48 million between 2001 and 2008. In addition, Vennes purportedly obtained more than $60 million in “commissions” related to investments in PCI notes by Palm Beach Funds, a group of hedge funds managed by David William Harrold and Bruce Francis Prevost, who were charged in the original indictment and pleaded guilty to committing securities fraud. Again, Vennes acted as the intermediary in transactions involving Palm Beach Funds, which totaled more than one billion dollars in PCI notes as of September of 2008.

Both Vennes and Fry allegedly made material misrepresentations and concealed material information about the PCI investments in order to induce investors. For example, investors were told 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. As a result, investors were falsely assured that all

PCI transactions were, in fact, taking place, and all money was secure. However, Vennes and Fry, among others, knew that no payments were ever received from retailers and, instead, came from PCI alone.

Moreover, Fry was allegedly aware of Vennes’s criminal history but failed to disclose it to institutional investors, although he knew such information was material to investors.

Fry also allegedly asserted to potential investors that historically PCI notes had been paid in 90 days, even though, after the fall of 2007, he knew that statement to be false. In order to conceal default of the notes, Fry and Vennes allegedly arranged to extend the payment dates for PCI notes without advising investors of those extensions. At the same time, both men purportedly continued to seek new investors, never advising them of PCI’s performance problems.

In or about July of 2008, Petters allegedly informed Vennes that there was fraud at PCI, with as many as twenty percent of the PCI notes being compromised. Vennes allegedly concealed that information from investors. He also purportedly continued to take money from investors, even after learning the money in PCI notes was not being used to buy and resell consumer electronics or other merchandise.

If convicted, Vennes faces a potential maximum penalty of 20 years in prison on each mail fraud, wire fraud, bank fraud, and false statement count; ten years on each money laundering count; and five years on each securities fraud count. Fry faces a potential maximum penalty of five years on each count. All sentences will be determined by a federal district court judge.
This case is the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigation Division, and the U.S. Postal Inspection Service, with the assistance and support of the United States Securities and Exchange Commission. It is being prosecuted by Assistant U.S. Attorneys Timothy C. Rank and Joseph T. Dixon, III.

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 effort to investigate and prosecute 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 is working 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.

An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by a defendant. A defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.

Karl Bremer Concludes Investigative Series on the Pardon Process for Frank Vennes

"The award-winning RippleInStillwater.com concludes an exclusive three-part series on the presidential pardon process of convicted money launderer Frank Vennes Jr. in a tale that weaves together a cast of characters from Michele Bachmann and Tim Pawlenty to Karl Rove and Walter Mondale."

Read Part 1 of "Lawyers, Guns & Money" here.

Read Part 2 of "Lawyers, Guns & Money" here.

Read Part 3 of "Lawyers, Guns & Money" here.

Stay tuned for more developments here and at Ripple in Stillwater

Frank Vennes Pardon Timeline on Dipity.

Part Two of Karl Bremer Exclusive Investigation Into the Pardon Process For Vennes

Karl Bremer's latest installment in his series on the Frank Vennes pardon raises some serious questions about the pardon process. This scandal reeks every bit as much, if not more than the Marc Rich scandal which Michele Bachmann has condemned (audio here)

Documents from the Pardon Attorneys office obtained by a FOIA request reveal a shocking timeline of undue influence by powerful politicians whose campaigns were the recipients of boatloads of money, the proceeds of a massive Ponzi scheme perpetrated by convicted fraudster Tom Petters with the alleged assistance of Frank Vennes.

The inescapable conclusion from reading the documents is that there was quid pro quo - cash for pardon... and it should prompt a Congressional investigation (there were a couple nvestigations into the Marc Rich pardon).

Frank Vennes Pardon Timeline on Dipity.

Karl Bremer's Latest Investigation Looks at Vennes and the Pardon System

A revealing look at the bizarre presidential pardon process of convicted money launderer Frank Vennes Jr. The first installment involves Michele Bachmann, Tim Pawlenty, Norm Coleman, Karl Rove and Walter Mondale and is titled "Lawyers, Guns & Money: An Inside Look at the Political Pardon of Frank Vennes Jr." - go read it at the Ripple in Stillwater blog.

AUDIO: Tom Petters Talking About Frank Vennes - What Vennes Knew and His Pardon

In a wire recording from September, 8, 2008, Government witness Deanna Coleman recorded Tom Petters talking about Frank Vennes. The money quotes:

Coleman: Frank knows that a lot of these are fake PO's, doesn't he?

Petters: No.

Coleman: Oh, doesn't he?

Petters: No, he just know a bunch of them are.

Petters also mentions that Vennes once described the office of Bob White who forged the fake purchase orders that were used to raise money for the Ponzi scheme as a "little paper manufacturing" plant. He also talks about how afraid Vennes was about the scheme going down and the "little old ladies" who invested in the Petters fraud through Vennes. Petters also says Vennes told him he would be saved from the consequences because he was going to get a pardon "next year".

This is an edited audio file. The complete audio file and transcript is on the MN DOJ website (Exhibit #377).

Listen:

Karl Bremer & Michelle Goldberg Discuss Frank Vennes on Democracy Now!

Karl Bremer and Michelle Goldberg were on Democracy Now! talking to Amy Goodman today. Excellent show. The segment with Karl Bremer and Michelle Goldberg is HERE. Transcript HERE.

Here's the portion dealing with Frank Vennes:

AMY GOODMAN: Who is Franklin Vennes?

KARL BREMER: Frank Vennes, Jr., was one of her largest contributors in 2006. He’s a convicted money launderer. He did time in federal prison in Sandstone Prison in northern Minnesota. And upon his release, he became involved in Tom Petters. And if you are familiar with the Petters Ponzi scheme, about a $3.5 billion Ponzi scheme that operated in Minnesota, Frank Vennes steered primarily evangelical Christian groups to invest with Tom Petters. And he became implicated in the Petters scandal in 2008. But that was after Michele Bachmann had written a recommendation for pardon for Frank Vennes. Vennes and his family and his personal lawyer have given Bachmann tens of thousands of dollars in campaign contributions. Vennes also contributed heavily to another Minnesota presidential candidate, Tim Pawlenty, and the state Republican Party. And Vennes got letters of recommendation from Tim Pawlenty, or recommendations for a pardon from Pawlenty, from Norm Coleman, former U.S. senator from Minnesota, and from Bachmann.

When Vennes was implicated in the Petters scandal in 2008, Bachmann withdrew her letter of support for a pardon, and she gave back a portion of the money that Vennes had donated to her campaign. Just in April of this year, Vennes was actually indicted in the Petters scandal, and he’s scheduled to go to trial later this year, which could make for an uncomfortable time for Michele Bachmann, because in her letter of support for a pardon, she indicated she had a very close personal relationship with Frank Vennes and was quite familiar with his personal finances. She has, of course, never returned my calls regarding Frank Vennes, and she’s really never explained fully her relationship with this convicted money launderer.

AMY GOODMAN: Michelle Goldberg, would you like—

KARL BREMER: He is under indict—

MICHELLE GOLDBERG: Well, yeah, I mean, obviously—you know, the local bloggers in Minnesota have been doing amazing work on this for years now. And it’s amazing to me—I mean, I’ve written about it a little bit in The Daily Beast. It’s amazing to me that this issue hasn’t yet broken into the mainstream media, in part because it’s not just about Michele Bachmann, it’s also about Tim Pawlenty. And one of the interesting things about Frank Vennes is that, you know, the reason that he was able to kind of insinuate himself into Republican Party politics both—was both financial and ideological, right? He claimed to have found Jesus when he was imprisoned for cocaine—for money laundering and cocaine trafficking. And then he came out, having found Jesus, and made himself a kind of stalwart of Minnesota’s evangelical community. He, you know, kind of cultivated all of these powerful allies. And it was because of these powerful allies that he was able to accomplish his fraud.

I mean, that’s what I think is important, is that when people like Tim Pawlenty and Michele Bachmann say that he deserved to be readmitted to—readmitted to polite society, that he needed this pardon in order to kind of further his financial career, one of the results of that was to build up his credibility and his credibility with evangelicals. Now, his role in the fraud, as Karl said, was to get evangelicals to funnel their money through him, you know, evangelical charities, also some funds that deal with retirement funds for pastors and ministers. He used his kind of credibility in that community, I think credibility that Bachmann and Pawlenty helped him build, to channel many, many millions of dollars from these communities into this massive, massive Ponzi scheme. And also, one of the reasons you haven’t heard about this Ponzi scheme is that it broke about the same time as Bernie Madoff, so it was really overshadowed, but it was really quite an enormous fraud.

The Guardian Mentions Frank Vennes Connection to Michele Bachmann

Paul Harris in The Guardian has a good profile of Bachmann. Here's an excerpt:

One of those skeletons could be her relationship with Frank Vennes, a man who served time in jail for cocaine distribution and money-laundering after being convicted in 1987. After his release, and apparently after finding God while in prison, Vennes became a friend of Bachmann and a big campaign donor for her elections. However, Vennes has recently been indicted on charges stemming from a Ponzi scheme and could end up behind bars again.

Read the whole thing

Article Mentions Vennes Family Contributions to Politicians

Karl Bremer at Ripple in Stillwater:

Minnesota is starting to look like the “Land of 10,000 Ponzi Schemes.” Hardly a month goes by before another Ponzi scheme unravels or another fraudster is exposed around here.

As bankruptcy trustees initiate “clawbacks” to try to recover ill-gotten gains from Ponzi profiteers and return them to their victims, one group seems to have escaped their attention: politicians. Many Minnesota politicians have benefited mightily from the largesse of the state’s Ponzimen, yet not one has been asked to give back their political contributions that were derived from illegal activity.

Karl Bremer lists the Ponzi guy's contributions to politicians including these Vennes family contributions to Michele Bachmann and others:

FRANK VENNES JR. AND WIFE KIMBERLY VENNES

MN House Rep Campaign Comm $85,750
Michele Bachmann $27,600
Mark Kennedy $11,300
Republican Party of Minnesota $10,000
John Kline $8,000
Tim Pawlenty (Governor) $7,500
Norm Coleman $6,000
Minnesotans for a Republican Cong $5,000
Erik Paulsen $4,600
Patrice Bataglia $4,000
Amy Klobuchar $2,000
George W. Bush $2,000
Ted Mondale (Governor) $2,000
Tim Tinglestad (District Cty Judge) $2,000
Republican National Committee $200

I am guessing we'll learn more about the political contributions of the Pirates of Minnetonka when Frank Vennes goes to trial next year.

Click on map to make it bigger:

New Scheduling Order for Vennes Pre-Trial Motions, Hearing and Trial

A New Scheduling Order was granted 05/18/11. The highlights:

Motions shall be filed on or before September 1, 2011.

Government responses are due on or before September 15, 2011.

The motion hearing currently scheduled for May 31, 2011, is hereby continued and rescheduled for September 20, 2011, at 9:30 a.m., in Courtroom 6A, before U.S. Magistrate Judge Jeffrey J. Keyes, at 316 North Robert Street, St. Paul, Minnesota.

--snip--

Trial will commence before U.S. District Judge Richard H. Kyle on February 6, 2012, at 9:00 a.m., in Courtroom 7A.

The discovery will take some time - tons of docs and dozens of recordings.

If Frank Vennes Pleads Not Guilty, Will Michele Bachmann Testify at His Trial?

Vennes appeared for the first time before a magistrate judge earlier this month. Vennes pled not guilty, but he will have another opportunity to plead at the end of the month.

There is a tentative trial date for August, but that may change. It is also possible that Vennes will change his plea and hope the judge will reduce his sentence by cooperating with the DOJ. That could be a concern for Bachmann if there was any quid pro quo regarding his donations and Bachmann's pardon letter (Vennes, not a constituent was Bachmann's top donor in 2006). Another scenario is that Vennes will plead guilty and receive a short vacation at Club Fed without ratting on anyone.

If there is a trial, Bachmann could be called as a character witness for Vennes. Bachmann's 2007 letter is a glowing tribute to the character of Frank Vennes, Bachmann personally vouches for Vennes:

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 she testifies, Bachmann will likely have to say whether she still agrees with that rosy assessment of the character of Mr. Vennes. Bachmann may also have to testify on cross-examination why she hastily withdrew the letter. What evidence did Bachmann have, that we don't have that Vennes was undeserving of a pardon. Even now, Vennes is still considered innocent until proven guilty under the law.

There is lots of evidence, some that was presented at the trial of Tom Petters that implicates Frank Vennes in the scam. Two cohorts of Frank Vennes have pleaded guilty and will likely testify against Vennes. There is a third possible witness who has pled guilty to fraud in relation to the Petters case and she may also appear as a witness against Vennes, It's not looking too good for an acquittal. The best strategy for the defense is "jury nullification" - calling witness after witness to testify that Vennes was such a good Christian that the jury should disregard the evidence and the judge's instructions and return a verdict of "not guilty".

If Bachmann is called to testify, will she testify for, or against Frank Vennes? Is it possible for Bachmann to still claim as she did in 2008 that she doesn't have enough facts to determine whether Frank Vennes played a vital role in the Petters Ponzi scheme?

Stay tuned....





Click on the arrest warrant below to make it bigger:



Cross-posted at the Dump Bachmann blog.

The Mysterious "Two Miracles"

Darrel Amiot, who gave a lecture with Frank Vennes at the "God & Money Dinner" in 2007 also gave a sermon November 7, 2008 titled "God's Sovereignty Over Economic Issues" about the financial catastrophe that happened to some religious institutions in Minnesota six weeks before.

Here's an edited version:



At the end, Amiot says the following:

"In the last two weeks, I've seen two miracles take place. I cannot tell you what those are. I have seen the move of God"

What were those two miracles? Anyone know?

I'm guessing the two lawsuits mentioned in this Strib article may be the two miracles (can a lawyer perform a miracle?)

Listen to Frank Vennes lecture on God & Money here.

Frank Vennes Makes First Appearance in Federal Court

Frank Vennes appeared in Federal Court in St. Paul today and pled not guilty (no surprise) to charges related to his involvement in the Petters Ponzi scam. Vennes will have a chance to change his plea later this month. If there is a trial, it will likely not happen before August.

Frank Vennes was indicted April 20th along with Bruce Prevost and David Harrold.

It was a short hearing, so I only was able to do a few quick sketches (colored them in later) Click to make them bigger.

Frank Elroy Vennes:



Vennes attorney James Volling:



UPDATE: Vennes signed appearance $100K bond document -( PDF ) from the Petters-Fraud site.

Frank Vennes/Tom Petters Interactive Timeline

A while back, I put together a timeline of events in the Petters/Vennes investigation and Bachmann's pardon letter for Vennes - I am in the process of updating it.

Take a look at the timeline at Dipity.

Daily Beast Article on Vennes Ties to Bachmann & Pawlenty

From Michelle Goldberg's Daily Beast article titled " Pawlenty, Bachmann, and the Right's Ponzi Scandal":

Tim Pawlenty and Michele Bachmann sought pardons for a major campaign donor now accused of fleecing faith-based charities in a Ponzi scheme. The 2012 presidential hopefuls should answer for helping make Frank Vennes Jr. respectable, writes Michelle Goldberg.

Last week, Frank Vennes Jr., one of the more bizarre characters in the history of recent financial scandal, was indicted on fraud and money-laundering charges in a U.S. District Court in Minnesota. A former North Dakota pawnshop owner who ostensibly found Jesus while serving a prison sentence in the 1980s, Vennes emerged as a pillar of Minnesota’s conservative Christian community. Then, according to the indictment, he channeled millions into a Ponzi scheme run by the businessman Thomas J. Petters, who is now serving 50 years in federal prison. Much of the money Vennes raised seems to have come from faith-based charities, pastors, and ministers, some of who have lost their life savings.

On its own, Vennes’s story would be a strange tale about audacious cynicism and religious gullibility. But Vennes’s entanglement with two likely presidential candidates, Minnesota Congresswoman Michele Bachmann and former Minnesota Governor Tim Pawlenty, gives it added weight. Vennes was a major donor to both politicians, and both politicians sought pardons for him in order to wipe away the taint of the crimes that first landed him in prison. Vennes’s respectability in conservative Minnesota circles seems to have enabled his crimes. Both Bachmann and Pawlenty should have to answer for bolstering that respectability.

The article mentions the excellent investigative reporting of Karl Bremer. Read Karl's article about the Vennes indictment at Ripple in Stillwater.

Karl Bremer: "Was money launderer Frank Vennes Jr. trying to buy a pardon from Bachmann, Pawlenty and Coleman?"

Karl Bremer over at Ripple in Stillwater has a good post on the story of Frank Vennes:

Convicted money launderer and cocaine/gun runner Frank Vennes Jr., a close personal friend and major campaign contributor of Minnesota presidential candidates Michele Bachmann and Tim Pawlenty, has been indicted on federal fraud and money-laundering charges for his alleged role in the $3.5 billion Tom Petters Ponzi scheme.

Vennes became implicated in the Petters Ponzi in 2008. Millions of dollars worth of his assets have been seized and are being liquidated to pay back some of the victims of the multibillion-dollar scam—the largest in Minnesota history. But until now, Vennes had not been charged with a crime for his involvement in the Ponzi scheme, which sent Petters to the U.S. Penitentiary at Leavenworth Federal Prison for 50 years.

If convicted, Vennes could go to federal prison for the second time in his life on such charges—and also be in need of a second presidential pardon.

Besides each taking tens of thousands of dollars in campaign cash from Vennes and his family, Bachmann and Pawlenty—along with former Minnesota Sen. Norm Coleman and former Minnesota GOP Chair Ron Ebensteiner—unsuccessfully sought a presidential pardon from President George W. Bush for Vennes’ federal crimes from the 1980s. Vennes donated heavily to Bachmann’s congressional campaign, Pawlenty’s gubernatorial campaign, Coleman’s senatorial campaign, the state House Republican Campaign Committee, the Minnesota GOP and other GOP candidates, all during the time the four Republicans heartily endorsed his candidacy for a pardon.

The timing of Vennes’ largesse has led many to speculate that it was part of a “pay-for-pardon” plot.

Read the whole thing.

Also read Eric Black's article about Vennes at MinnPost.

My Posts on Other Blogs Mentioning Frank Vennes

A selection of posts from the Dump Bachmann blog:

Vennes Supporters Behaving Badly - December 19, 2010

Frank Vennes Jr. a No-Show at Hearing for His Motion - December 17, 2010

Frank Vennes Files Motion the Day After Election (links to Ripple in Stillwater) - November 08, 2010

MN Teen Challenge Returned Bachmann's Campaign Contribution From Frank Vennes Jr. April 20, 2009

More About Bachmann and MN Teen Challenge Saturday, April 18, 2009

Michele Bachmann's Pardongate - October 05, 2008


Frank Vennes Jr. Alleged to Have Known About Petters Ponzi Scheme - January 09, 2009

Bachmann Wrote Pardon Letter the Same Month Vennes is Alleged to Have Learned About Petters Ponzi Scheme - January 10, 2009

Petters Info blog:

The Sorry Saga of Hope Commons - APRIL 3, 2010

Vennes Property for Sale - 3515 2nd Avenue South - MARCH 5, 2010

Cost of Peters Fraud in Fees etc.- $12 million - FEBRUARY 6, 2010

Northwestern College Trustee Fracas - FEBRUARY 2, 2010

Bizarre Audio of Tom Petters, Bruce Prevost and Frank Vennes Jr. Talking Religion (and Money) DECEMBER 3, 2009

NSFW Wire Recording of Tom Petters's Breakdown (9/9/2008) DECEMBER 3, 2009

While Waiting for a Verdict... More Stuff About Frank Vennes - DECEMBER 2, 2009

Frank Vennes Talking About God & Money

Frank Vennes Jr. telling how God made him rich (or something like that). The other person introduced is Darrel Amiot who with Vennes spoke at something in February of 2007 called the "God and Money Dinner".

Here's the audio of Frank Vennes Jr. in 4 parts:

Letters From Michele Bachmann and Norm Coleman Requesting a Pardon for Frank Vennes

Eric Black at MinnPost gives a good round-up of the info regarding Frank Vennes and his relationship to Michele Bachmann, Norm Coleman and Tim Pawlenty. Eric Black also mentions the excellent reporting of Karl Bremer (also mentions Dump Bachmann). Read the whole thing.

Here are the two letters requesting a POTUS pardon for Frank Vennes:

Prevost and Harrold Plead Guilty, Will Testify That Vennes Committed Fraud

I attended the hearing today at the Federal Courthouse in St.Paul.

Bruce Prevost and David Harrold agreed to plead guilty to 4 counts of securities fraud each.

The indictment says Vennes recruited Harrold and Prevost in 2002 to raise money for Petters and PCI. PCI was the Ponzi part of the Petters empire. Vennes told Harrold and Prevost that he had negotiated and arranged financing for PCI for 8 years. Vennes described himself as Petters' "financier". Vennes also said Petters requested Vennes act on his behalf in doing the financial wheeling and dealing. Vennes told Harrold and Prevost that he knew Petters' business "intimately" and that Vennes had done due diligence on PCI. Vennes apparently set himself up as the gateway between the Palm Beach hedge fund and PCI.

From 2002 to 2008, in nearly 2,100 transactions the Palm Beach hedge fund invested $8 billion in PCI notes. By September 24, 2008, $1 billion of the hedge fund's investor's money was invested with PCI.

Vennes handled the transactions and made a nifty $60 million in fees.

The indictment says the three con artists conspired to lie to the investors - "swapping" PCI's fraudulent notes to hide the fact that Petters was unable to pay. Vennes did all the documentation on the note swaps. After as they were swapping the notes, they were taking investors' money... $75 million from more than 30 investors.

Vennes is charged with money laundering - a charge having to do with a $98, 814.12 check to the law firm of Howse & Thompson.

Will Frank Vennes also plead guilty?

Stay tuned...

(Click sketches to make them larger)




Cross-posted at Dump Bachmann.

Frank Vennes Hedge Fund Cohort Bruce Prevost to Plead Guilty Today

Yesterday, I posted the news that Frank Vennes and his two hedge fund partners Bruce Prevost, and David Harrold were indicted for fraud (Vennes has an additional charge of money laundering).

The Federal Court in St. Paul has hearings today for Harrold and Prevost - Prevost will apparently be entering a guilty plea. Listen to Bruce Prevost and Frank Vennes talking to Tom Petters in this audio selection from the wire of Deanna Coleman at a meeting 9/9/08:

Petters Cohort Frank Vennes Jr. Indicted for Fraud and Money Laundering

UPDATE: MNDOJ Press release HERE:

Three Florida men indicted for lying to investors about hedge fund’s investment with Petters

MINNEAPOLIS – Three Florida men, a business associate of Thomas J. Petters and two hedge fund managers, were indicted today in federal court in Minneapolis for fraudulently marketing a hedge fund’s investments in Petters Company, Inc. (“PCI”). Frank E. Vennes, age 53, of Stuart, Florida; David W. Harrold, age 51, of Del Ray Beach, Florida; and Bruce F. Prevost, age 51, of Palm Beach Gardens, Florida, were charged with four counts of securities fraud in relation to this alleged crime. In addition, Vennes was charged with one count of money laundering.

PCI was owned and operated by Petters, who represented that funds invested in PCI promissory notes would be used to finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would then 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 for his own personal benefit hundreds of millions of dollars. His $3.65 billion Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business offices and other locations. He was subsequently prosecuted and, in April of 2010, sentenced to 50 years in federal prison. He is currently serving his sentence in the federal
penitentiary in Leavenworth, Kansas. Petters began the PCI Ponzi scheme in or before 1993. Starting in the late 1990s, he raised
most of the proceeds of the fraud by selling PCI notes to large hedge funds, managed and
operated by hedge fund managers. Hedge fund managers had a fiduciary duty to their investors.

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They made representations to their investors regarding the investments, the due diligence performed on the investments, and the financial mechanisms put in place to protect the hedge fund’s investments in PCI. In exchange for their efforts, the hedge fund managers obtained management fees from investor funds.

The indictment returned today charges Harrold and Prevost with defrauding hedge fund investors. The men co-founded Palm Beach Capital Management, which served as the investment adviser for the four Palm Beach hedge funds. According to the indictment, Vennes directed Harold and Prevost to communicate with Petters and PCI only through him. In November of 2002, Harrold and Prevost purportedly first invested hedge fund money in PCI, and as of September 24, 2008, the hedge funds reportedly held PCI investments totaling approximately $1 billion. Between 2002 and 2008, Harrold and Prevost’s companies allegedly grossed more than $58 million in management fees. For his part, Vennes received more than $60 million in commissions based on the Palm Beach investments in PCI.

Allegedly, the defendants made material misrepresentations and concealed material information about the PCI investments in order to induce investors to purchase securities. For example, investors were told that when 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 Harrold and Prevost’s management companies. As a result, investors were falsely assured that all PCI transactions were, in fact, occurring. However, the defendants knew the hedge funds received payments from PCI alone and never from retailers. Moreover, by February of 2008, millions of dollars of PCI notes were on the verge of default. Between February and September of 2008, the defendants engaged in a scheme to swap more than $1 billion worth of PCI promissory notes to create the appearance that PCI could repay the notes held by the Palm Beach funds. All note swaps allegedly went through Vennes. During that same time period, Harrold and Prevost allegedly continued to report to investors that the hedge funds were generating steady profits and, encouraged and assisted by Vennes, solicited new investors and additional money from existing investors, raising more than $75 million in new money from more than 30 investors.

If convicted, the defendants face a potential maximum penalty of five years on each securities fraud count, while Vennes is subject to as much as ten additional years in federal prison for money laundering. All sentences will be determined by a federal district court judge. This case is the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigation Division, and the U.S. Postal Inspection Service, with the assistance and support of the Securities and Exchange Commission. It is being prosecuted by Assistant U.S. Attorneys Timothy C. Rank and John Docherty.

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 effort to investigate and prosecute 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 is working to improve efforts across the federal executive branch and, with state and local partners, investigate and prosecute significant financial crimes,

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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.

###
An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by a defendant. A defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.
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Here's a good summary of Bachmann's connection to convicted felon Frank Vennes Jr. by Karl Bremer:

In 2008, it was revealed that Bachmann had received tens of thousands of dollars in campaign contributions from Frank Vennes Jr. and his family. Vennes is a convicted money-launderer/cocaine runner/gun runner for whom Bachmann had requested a presidential pardon in 2007.

When Vennes became implicated—but never charged—in the Tom Petters multibillion-dollar Ponzi scheme in 2008, it didn’t take long for Bachmann to abandon her principled “innocent until proven guilty” stance. She quickly rescinded her pardon request for her close personal friend, and then tried to further save face by giving away a portion of the money she had taken from Vennes and family—although it was only $9,200 of the $27,400 she had hauled in from the Vennes family from 2005-2008.

Bachmann first tried to give the money to Minnesota Teen Challenge, a favorite evangelical charity of Bachmann’s that once had very close ties to Vennes. He is a former board member of the organization. However, Minnesota Teen Challenge allegedly lost $5.7 million in investments in Petters companies that were made through one of Vennes’ companies.

Rich Scherber, executive director of Minnesota Teen Challenge, said his organization sent Bachmann’s $9,200 check back without even cashing it.

“We didn’t want to be involved if it was dirty money,” Scherber said at the time.

Bachmann eventually found a willing taker for her tainted Vennes money when she donated it to R3, a collaborative of Christian recovery groups that happens to include Minnesota Teen Challenge.

More about Frank Vennes...

Listen to Frank Vennes talk at God & Money Dinner.

Bizarre Audio of Tom Petters, Bruce Prevost and Frank Vennes Jr. Talking Religion (and Money)

Posts about Vennes at Karl Bremer's Ripple in Stillwater blog.