Video: Preview for Trial of Frank Vennes

Frank Vennes' Quest for a Presidential Pardon Was Used to Obtain Funds for the Petters Ponzi Scheme

In a pretrial document filed Friday with the Federal Court last week, prosecutors argued that Frank Vennes' 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 ny 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.

To further explain the importance of admitting the prior convictions as evidence, the government gave a brief history of the career Frank Vennes with new details that help explain the furtive manner in which Frank Vennes conducted business and lived his life. The following narrative of the colorful career of Frank Vennes is derived from the government documents with some additional information added from other sources including the chapter on Frank Vennes in "The Madness of Michele Bachmann", a book I co-authored with Karl Bremer and Eva Young (Wiley & Sons).

In the mid - 1980's, Bismark, North Dakota pawn shop owner Frank Elroy Vennes Jr. was caught up in an IRS investigation of money laundering in North Dakota. A sting was set up in which an agent posed as an investor from Chicago. Vennes, knowing that what he was doing was illegal, agreed to courier cash in exchange for a commission of 6% of the cash he took out of the United States. Over the ensuing months, Vennes and his cohorts received $370,000 from the undercover agent (minus substantial commissions) and illegally conveyed the money to offshore accounts in the Bahamas, the Isle of Man, and Switzerland. In October 1986, Vennes hid $100,000 in cash on his person and caught a plane from Minneapolis to London and deposited the cash in an account in the Isle of Man.

A few weeks later, Vennes took a trip to Switzerland with a hundred grand to be deposited as instructed by the undercover agent in a Swiss bank, but Vennes returned clamming his cohorts in Switzerland walked off with the money. The undercover agent then asked Vennes to recoup the "lost" money by arranging illegal firearms and drug deals. An undercover agent paid Vennes $3,000 for two machine guns, two semi-automatic pistols and 700 rounds of ammunition. Vennes also tried to buy kilogram quantities of cocaine. In May 1987, Vennes was charged with various money laundering, firearms and narcotics offenses. In August 1987, Vennes pled guilty to one count of money laundering, and pled nolo contendere (no contest) to one count of illegal firearms sales and one count of using a telephone to distribute cocaine.

From the Vennes chapter in "Madness of Michele Bachmann":

On September 11, 1987, Vennes was sentenced to a 5 years, speeding most of his time in the Sandstone correctional facility 100 miles northeast of Minneapolis. . He served thirty-eight months in prison; was released on parole on December 12, 1990. While in prison, Frank Vennes met and developed a close relationship with visiting members of the Minnesota prison ministry Charis. After his release from prison in 1990, Vennes moved to the Twin Cities area and landed a job with a job pushing a broom for seven bucks an hour in metal fabrication company in Bloomington. Vennes talked about this difficult time in his life in recorded speech he gave to students at a college in Minneapolis (listen to the talk at this Vennes Info link).

Following his release from prison, Vennes did not appeal his sentence or conviction, but he commenced a “Bivens action” against the federal government, seeking $10 million in damages from “unnamed federal agents for entrapment, outrageous conduct, and willful violation of the tax laws.” 

According to a judicial opinion from the 8th Circuit Court of Appeals, Vennes testified that at the prompting of undercover agents posing as Chicago businessmen in North Dakota, “he made two trips to Switzerland to launder money provided by the agents. Vennes successfully laundered $100,000 on the first trip, but on the second trip, associates of Vennes made off with the other $100,000. 

“When Vennes returned without the money,” the opinion stated, “the Chicago businessmen revealed themselves to be members of the Mafia and threatened . . . to dismember his children if he failed to recoup this money (perhaps suspecting that their superiors would be none too pleased at the loss of $100,000 of government money). These newly revealed mobsters then suggested that Vennes engage in illegal drug and firearms transactions in an effort to recoup the money and thereby avoid serious bodily harm to him and his family. Vennes did so, the efforts to recoup the money were unsuccessful, and Vennes was eventually charged with a panoply of crimes.” Vennes told the court that “I did get involved with some drug deals, but I lost money on those too, or got ripped off, so that there was never any money to repay the agent.” 

The District Court acknowledged, “the underlying factual situation . . . is wondrously bizarre. Especially fascinating is speculating about the scene which occurred when the undercover agents tried to explain the loss of $100,000.” 

Yet Vennes failed to convince the court that he was entrapped, most notably because he pleaded either guilty or no contest to the charges. In dismissing Vennes’s claims, North Dakota U.S. District Judge Patrick Conmy wrote that “The record reveals that at one point, Vennes purchased cocaine from his own source in Florida after haggling with an undercover agent supplier about price and speed of delivery. This is not the conduct of one coerced or entrapped into crime.” 

In addition, at sentencing, according to the appeals court record, “Vennes’s attorney stated that the presentence report was complete, fair and thoroughly professional. He further stated that he was not ‘in any way indicating that these government agents acted in an improper fashion.’” 

Vennes argued that he pled guilty and no contest on the advice of his attorney, whom he accused of “ineffective assistance.”

Vennes appealed the District Court’s decision to the 8th Circuit Court of Appeals and lost, and he was denied appeal to the U.S. Supreme Court. His claims were ultimately rejected in 1994.

While employed as a janitor, Vennes began borrowing money from his boss and others he met through the faith community associated with Charis. He used the money to buy goods – including gold coins and expensive watches – which he resold at a profit. At his trial, Tom Petters testified that he was introduced to Frank Vennes (around 1995) by Petters associate Ruth Kahn. When asked by his attorney to describe Vennes, Tom Petters offered a one word description - "peculiar".

Prosecutors describe what happened next:

Petters offered to pay Vennes a substantial interest rate if he could secure money to loan to Petters, purportedly to fund the purchase of consumer goods that Petters was going to resell at a profit. Vennes did not have the money himself, so he asked his boss, the man who had given him a job upon his release from prison, for money to loan to Petters. Vennes’s boss agreed to lend Vennes $100,000, and Vennes, in turn, lent the money to Petters. Petters gave Vennes a promissory note in which he promised to repay Vennes in 30 days, along with $10,000 in interest (an annualized interest rate of 120%). Over the next several months, Vennes borrowed additional funds from his boss, which he gave to Petters in exchange for promissory notes in which Petters agreed to pay similar interest rates. Vennes took a cut of the interest on each transaction for himself.

Vennes also began borrowing money from others associated with Charis or related Christian organizations, which, in turn, he used to lend Petters progressively larger amounts. Indeed, by the end of 1995, Vennes (who did not have even $100,000 to lend Petters in May of 1995) was able to obtain more than $1.2 million to lend Petters in a single financing transaction. Vennes kept a portion of the interest paid by Petters on each transaction. Starting at the end of 1995, Vennes began issuing the promissory notes to the people from whom he borrowed money in the name of his newly formed company, Metro Gem, Inc. Over the next couple of years, the amounts of money Vennes was obtaining from others to lend to Petters continued at an ever-increasing rate. The source of this money remained largely the same, as Vennes continued to obtain loans from those in Charis or related Christian organizations.

By 1996, the voracious Ponzi scheme at the heart of PCI needed more money than Vennes could provide by exploiting his affinity with the trusting, faith-based community he met through Charis (On the Charis prison ministry's IRS #990 form for 2003, Frank Vennes is listed as the treasurer and the address listed for Charis was the same as Metro Gem).

Toward the end of 1996, Vennes began looking for funding through institutional lenders. With the assistance of a Twin Cities businessman, Vennes tried to get a $5,000,000 revolving loan from Allstate Financial Services to Metro Gem for to be used to finance transactions arranged by Petters. On November 20, 1996, Vennes travelled to Arlington, Virginia to meet with Allstate representatives to sign documents to close on the loan. The next day, Allstate refused to loan Vennes the money because a background check had uncovered the money laundering conviction and the related drug and gun charges. Vennes begged the Allstate loan officer to reconsider to no avail. Vennes tried again to obtain loans through institutional lenders including including American Express, GE Capital, Nations Bank, and Merrill Lynch with the assistance of a convicted fraudster Vennes met in Sandstone. The effort of these two jailbirds failed.

August 6, 2001, Frank Vennes was interviewed by an FBI special agent in connection to his request for a pardon. In that interview, Vennes complained to the agent about the convictions he was petitioning to be expunged by Presidential order:

The stigma of a felony conviction has denied him free enterprise opportunities. Financial institutions do not even want to negotiate terms for loans. Consequently, he is forced to obtain capital from individuals.

Vennes was finally able to obtain funding for Metro Gem through James Fry a former dentist, former broker with Smith Barney and Piper Jaffray, and manager of a small investment company he started in 1996, called Arrowhead Capital Management. The Arrowhead fund's investments were primarily in the medical device industry. Fry lent some of his fund’s investors’ money to Metro Gem, and Vennes paid Fry up to 48% annual interest on short-term notes. Vennes took that money and stirred it into the Petters' promissory note milll and obtained even higher rates of return.

In 1999, Vennes and Fry patterned to obtain a 150 million dollar line of credit from Barclays Capital to pour into PCI. In April of 1999, after more than two months of negotiations, Vennes and Fry had an agreement in principle with Barclays. As part of a due diligence procedure, Barclays asked Vennes and Fry to sign released to conduct a criminals background check on them. Vennes, knowing what information such an investigation would uncover, admitted up front to the Barclays representative that he had a felony record whereupon Barclays promptly informed Fry and Vennes that the the deal was off because of Vennes’s criminal history.

After the Barclays fiasco, Fry got creative. In late 1999, using an offshore hedge fund Fry set up the previous year in Bermuda, Arrowhead Capital Finance, Ltd.(ACI) to loan millions of investors' dollars to Metro Gem. Vennes, who insisted on being the go-between Petters, loaned the money to PCI. The money was intended to fund the purchase of consumer goods such as televisions and VCRs for resale at a profit. In return for the financing, Petters gave Vennes a promissory note promising to pay Metro Gem in 90 days later at annual rates around 70 percent. Vennes would then hand over the PCI promissory notes to Fry's offshore hedge fund. Fry's hedge fund was used almost exclusively as a conduit of investor money to PCI, however PCI was not mentioned by name in the fund's "Offering Memorandum", neither was Vennes named as the gate-keeper between Petters' PCI and Fry's hedge funds.

In the summer of 2000, Butterfield Bank, the custodian of Fry's hedge fund uncovered the promissory notes and the Vennes convictions in a routine review of the fund's collateral. Butterfield Bank promptly ended its relations to Fry and his hedge fund based on Fry’s failure to disclose Vennes’s criminal history. at this time, KPMG Peat Marwick (KPMG), an auditing firm involved with Fry's offshore hedge fund also learned of Vennes and his criminal history - Fry explained away the Vennes connection claiming Vennes and Metro Gem were mere conduits to Petters. In October of 2000, Fry disclosed that Vennes was seeking a Preidential pardon. He told KPMG that the “Vennes’ case is before the Executive Committee of the White House for expungement and complete discharge.”

Fry then approached the Bermuda Commercial Bank to provide the services lost when Butterfield and Fry parted ways. In December of 2000, Fry told KPMG and 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.” With this assurance, KPMG and Bermuda Commercial Bank agreed to work with Fry. But, the campaign for a Presidential pardon expunging the Vennes crimes was not successful by the December, 2000 deadline. For more detailed background on the Vennes fruitless effort to obtain a pardon from President Bill Clinton, read part 2 of Karl Bremer's "Lawyers Guns & Money: The Twisted Trail of the Frank Vennes Jr. Presidential Pardon."

Without the pardon, Fry lied to the KPMG auditors claiming “ACF now deals direct with Petters and the previous arrangements involving MetroGem and Frank Vennes no longer apply.” In addition, Fry altered paperwork to conceal his ongoing business relationship with Vennes and Metro Gem and the relationship continued even after Fry unsuccessfully attempted to go around Vennes and deal with Petters directly in 2002. The arrangement with Vennes and Metro Gem as "service agent" for Arrowhead loans to PCI continued from 2001 and for much of 2008. Even though Vennes was in firm control of communications and the flow of money between PCI and Arrowhead, and was compensated for this service to the tune of $48 million dollars, Fry concealed all of that from his investors and Vennes was totally aware of that deception.

A similar arrangement concealing the Vennes role as go-between existed with the Palm Beach Finance hedge funds. The PDF principals Bruce Prevost and David Harrold also concealed from investors the Vennes name and criminal history. Vennes raked in more than $58 million from PBF transactions in PCI notes.

We are unable to say whether Vennes received the pardon he desperatley sought, however in a recorded conversation  between government witness Deanna Coleman and Tom Petters dated September, 8, 2008, Petters says Vennes told him he would be saved from the consequences because he was going to get a pardon "next year"- complete audio file and transcript is on the MN DOJ website (Exhibit #377)."

For additional information about the role the Vennes' quest for a Presidential pardon played in Vennes'  alleged role as financier for the Petters Ponzi scheme read Karl Bremer's 3-part investigative series "Lawyers Guns & Money,: The Twisted Trail of the Frank Vennes Jr. Presidential Pardon" at Ripple in Stillwater.

Frank Vennes Defense Plans to Introduce Testimony and Exhibits About HIs "Good Acts"

The Government has filed pretrial motions with the Court  his week including a history of the criminal activities of Frank Vennes that includes new details about his previous conviction for money laundering, drug and gun trafficking (more about that in the next post).

In one document, the prosecution says Vennes has submitted a list of 45 witnesses to be called to testify on his behalf and 196 exhibits. James Fry has not yet submittted a witness list or exhibit list.

The Government says witnesses and exhibits are about specific "good acts" including his involvement with "various charities" and his donations. Readers of this blog will have a pretty good idea who those charities are and number and size of the contributions.

The Government also asked the Court to preclude an expert witness for Defense who will apparently testify that the criminal history of Frank Vennes and "the flow of funds" is not material to the case. The prosecutors claim that testimony will only confuse the jury who will, in the end be deciding the materiality of that evidence.

Palm Beach Finance Trustee Sues Fulbright & Jaworski

From the complaint (PDF) filed 11/30/12:

Fulbright failed to comply with its duties to the Palm Beach Funds and the applicable standard of conduct. As a result, the Palm Beach Funds suffered damages.

Pre-Trial Motions

Vennes defense attorney James Volling has asked Judge Kyle to exclude recorded conversations that do not involve the defendants on the basis that the audio files are hearsay. Volling also requested that Vennes' prior felony convictions not be admitted as evidence or if the felony is allowed, the jury should receive instruction about how that evidence of past crimes should not be used as proof that the defendant is guilty of crimes he is currently charged.

Volling also seeks to exclude co-defendant James Fry's testimony to the SEC or include a limiting statement to the jury. Volling also asked the Court to prevent the prosecution from using Rule 404(b),  evidence that the crimes were committed because of a character trait  in the Government's opening statement.

Volling  also asked for cautionary instructions to the jury about testimony from cooperating witnesses.

Volling asked the Court to exclude evidence or testimony "regarding alleged violations of civil rules or regulations". Voling also asked the Court to prevent the prosecution examining witness regarding their veracity.  Voling also asked that forfeiture be removed from the verdict form and presented to the jury in a separate procedure following conviction (if Vennes is convicted).

Minnesota Teen Challenge is Changing its Name

MNTC.org:

We’re Changing our Name!

For almost 30 years, our program has been restoring hope to teens and adults struggling with drug and alcohol addiction. This year, we are in the process of officially changing our name to Mn Adult & Teen Challenge to more accurately communicate who we serve...

MNTC claims (audio) it uses God to cure addiction.

A little history from a previous post about MNTC and Frank Vennes:

Minnesota Teen Challenge filed a motion to dismiss the $5,790,606.51 Palm Beach Finance clawback May 10th using  the recently passed statute limiting clawbacks of fraudulent transfers to 2 years instead of 6 years. The retroactive part of the  bill is intended by its sponsors to rescue non-profits from having to cough up the stolen money they received specifically from the Petters Ponzi scheme - Listen:



House_Audio_1384 by spongiforce

Defenders of HF 1384 claim the non-profits rescued by this new statute are unwitting victims of Tom Petters. The analogy they use is Petters, with no criminal record (it was expunged) is like a bank robber dropping his loot into a church's poor box - how were they to know?

When it comes to Minnesota Teen Challenge and other non-profits who received fraudulent transfers of money from Frank Vennes, there's three big problems with that analogy;

1) Frank Vennes was not an anonymous donor to MNTC.

2) He was a board member.

3) It cannot be said that MNTC was unaware that Frank Vennes was a fraudster - he was a convicted money launderer. It is highly unlikely that the MNTC board did not know that Frank Vennes had served time for that crime since he gave one or more lectures (audio here) about it, including one at something called the "God and Money Dinner" with Darrel Amiot who also served on the MNTC board.

This is what Minnesota Teen Challenge Director Rich Scherber said about accepting Vennes funds (2011?) - Note that it only mentions Petters, not Vennes (download PDF here):

Dear Friends of Teen Challenge,

If you have been following the news lately, you may have heard that Petters Companies is under investigation. Those who have walked with Teen Challenge over the years have seen the generosity Tom Petters has shown towards our ministry. Needless to say, we are stunned and saddened by the news we have recently heard. We have been contacted by many of you who are concerned for us and are praying; we are so thankful for your prayers and support.

In an affidavit, Teen Challenge is mentioned as being one of many victims. Our board felt it important to share with you the ministry’s involvement with Petters Companies, and how this situation has affected us.

About seven years ago, one of our major donors recommended that we consider building a strong reserve fund for Teen Challenge – a nest egg –for use in case of emergency or for program expansion. The donor suggested that we work with the Harvest Fund, and later the Fidelis Foundation, organizations that work with many other Christian ministries, and consider investing some of his large charitable gifts in the Petters Companies, a once strong, respected corporate entity in Minnesota.

From the very beginning of our investments, our board of directors adamantly insisted that no other general donor funds ever be transferred into those notes. For seven years this investment bore a healthy return and helped us expand our programming and outreach. In the past year, we have been using the interest on these funds to help underwrite the costs of our statewide programs.

Strong Christian stewardship is one of our embraced values. It is important for you to know that our board is very prudent and careful with all contributions that come into the ministry. We recognize that many of your contributions come at great sacrifice. This situation has caught hundreds of other investors and ministries by surprise and we are in the process of assessing its impact on the ministry.

As always, your prayers and support of our Christian mission are much appreciated.

Sincerely,

Rich Scherber

Executive Director

I contacted MN Teen Challenge. The spokesperson had no comment on the motion to dismiss.

Below is the MNTC letter (click on the letter to make it larger:

This is from a MNTC newsletter:

Where is Kurt Bills Getting this Stuff?

I was listening to Kurt Bills on Almanac when he said Petters Trustee Doug Kelley was "Petters' lawyer".

I'm guessing Kurt Bills has been reading the vintage  Stop the Petters Scam website. Maybe the Petters-Fraud website too. Or maybe they watched "The Second Fraud" movie - trailer below:




I really don't care about the allegations coming from the Kurt Bills campaign except this; if Kurt Bills is going to dredge up a lot of old, rehashed stuff, he should be honest and transparent about where he found it so people can read for themselves and decide.

If those websites were the source of the allegations, of course the Kurt Bills campaign cherry-picked what they found on those websites. There are more politicos from BOTH parties mentioned on those websites. As yet, nothing about Petters' financier Frank Vennes (mentioned on both those websites) has emerged as a campaign issue in this election.

The Petters Ponzi Scheme Becomes Campaign Issue in MInnesota Senate Race

In my previous post, I mentioned how the right-wing tried to blame the success of Tom Petters Ponzi scheme on Senator Amy Klobuchar. Senator Klobuchar's opponent Kurt Bills has posted his first TV ad on You Tube making the allegations part of his campaign:




Haven't we seen these allegations before?:

I'm more interested, frankly, in the weird and marginally ethical ads running in the Star Tribune, paid for by an organization called the Stop the Petters Scam Foundation. You can view the ads here at their Web site. They purport to tell the REAL story behind the Petters case and how it's being handled in the courts. The ads make thinly veiled allegations of impropriety against public figures such as Norm Coleman, Amy Klobuchar and in today's ad, federal District Judge Ann Montgomery.

Today's ad, for example, doesn't actually say that Montgomery did improper judicial favors for a former colleague, Petter's attorney Doug Kelley, but it absolutely implies it, leaving the reader with the impression that Montgomery's a crook (just like Kelley, et al). The ad concludes with a reference to "one national bankruptcy law expert" -- of course, unnamed -- who says Montgomery's conduct in regard to judicial immunity for Kelley "is unprecedented in the bankruptcy context."

Here's a quote from Doug Kelley from MPR:

That trustee, Doug Kelley, said the allegations in Bills' ad are preposterous. "To base a serious ad on testimony which has been so thoroughly discredited is irresponsible," Kelley said. "I would expect a serious candidate for high office in this state to go out and be careful about allegations such as that." Kelley, who said he is a lifelong Republican, said Osskopp approached him earlier this year to see if he had anything the campaign could use against Klobuchar. Kelly said he told Osskopp he was barking up the wrong tree.

Doug Kelley's law firm is representing former Minnesota Chairman Tony Sutton which makes this tweet  from Sutton's wife ironic:

Also read about the guy making the allegations over at Left.mn.

Daily Caller Source Accused U.S. Attorney B. Todd Jones of having " aided and harbored a $50 bn Ponze swindle"

I had a few things to say in the City Pages Blotter about a pathetic October surprise some right-wingers cooked up with the right-wing website The Daily Caller about Tom Petters and Amy Klobuchar.

Naturally, these right-wingers are not interested in other politicians named in connection to the Petters scam such as the prominent politician in another Daily Caller article from a while back.

The Daily Caller's source is Richard Hettler. Here is a klassy tweet from Mr. Hettler accusing U.S. Attorney B. Todd Jones of having " aided and harbored a $50 bn Ponze swindle"

 

Palm Beach Trustee: General Electric Capital Conspired With Tom Petters to Defraud Investors

The attorney for the Palm Beach Finance Trustee filed a civil suit  (PDF) against GE Capital, one of the world's biggest financial firms  alleging GE Capital employees knew that Tom Petters was running a Ponzi scheme way back "on or about October 24, 2000" and did nothing to stop it:

GECC would remain silent about its discovery of the Conspiracy and assist in its continued fraudulent concealment. Petters would cause GECC to be paid from new, defrauded lenders rather than from the proceeds of legitimate operations.

Even worse, the document alleges GE Capital helped Tom Petters recruit more victims with a recommendation letter addressed to "Whom it May Concern" (see screenshot of the letter below).

Here's the part that mentions the role Vennes played in the scheme involving the letter:

In 2002, Vennes introduced the principals of the general partner of the Palm Beach Funds to Petters. Petters used his former relationship with GECC as a strategic selling point, representing to the Palm Beach Funds through Vennes and Vennes’ Minnesota legal counsel, that the GECC-Petters business relationship ended: (i) profitably for both sides; (ii) with appropriate and ordinary documentation; and (iii) because GECC wanted to be Petters’ sole lender but Petters refused. 

The Recommendation Letter was shared by Petters with Vennes. Vennes in turn waxed poetic about the successful Petters-GECC relationship as a part of his efforts to convince the Palm Beach Funds to lend to Petters. Vennes’ representations to the Palm Beach Funds in regards to Petters’ “excellent” relationship with GECC were influenced by the Recommendation Letter. The Palm Beach Funds, through its agent, justifiably relied upon these representations. 

These representations were false and Petters and GECC knew them to be when made.

Here is the infamous letter that GE Capital's  Richard Menczynski gave Petters to use to  convince victims to give money to Petters:

NOTE: The PBF Trustee is seeking the total losses of the Palm Beach funds (approximately $1.1 Billion) plus punitive damages.

Vennes/Fry Trial May be Postponed Beyond February 12, 2013

Joe Friedberg, in an August 29, 2012 letter addressed to the court stated the following (emphasis is mine):

...based on the Venne's continuance motion, trial in this matter will be rescheduled from October 1, 2012 and will now commence February 11, 2013, or later.

The Vennes home in Shorewood, Minnesota was raided September 24, 2008, nearly four years ago. Tom Petters was convicted in 2009.

Friedberg also says in his letter:

"The undersigned believes the ends of justice served by granting of the continuance in this matter outweigh the best interest of the public and the defendant in a speedy trial."

The public? Does that include the investors?

Arraignment on Second Superseding Indictment - Vennes & Fry Plead Not Guilty

It was a short hearing - too short for me to complete my sketch of Mr. Vennes. After the arraignment, Frank Vennes and his lawyer walked briskly away (not run as was the case at a previous hearing). I managed to snap a few fuzzy and shaky photos with a phone as they exited the courthouse via the skyways:

"Frank the Janitor"

From a  Sun Sentinel article from December 24, 2006:

Then Bruce Prevost, a longtime member of the special needs ministry, told a story. 

"Frank the Janitor," had visited the special needs center about six weeks ago. Early in life when he was still a janitor, Frank had donated his life savings of $25,000 to a church ministry, before becoming successful in business, Prevost said. 

When Frank heard about the Szukas' struggle with a hurricane-damaged, wheelchair-unfriendly home, he decided to provide them with a furnished, accessible house while remaining anonymous. A 4,752-square-foot Loxahatchee home, worth $500,000, built on 1.2 acres in 2003 for a wheelchair-bound man, was the perfect solution. In the last week, church volunteers had painted and personalized it. " 

Your family has served and served and served, and been an example of boundless love," Prevost said, handing them an oversized gold key, wrapped in Christmas ribbon.

Interesting...

UPDATE: Apparently, this story was included as a chapter in a book titled "Christmas Promises: Heavenly Gifts for the Holiday Season" by LeAnn Weiss published by Gospel Light.

You can read the chapter at Google Books.

Vennes/Fry Trial Postponed Again to 2/12/13

From the docket:

On July 30, 2012, the Court held an informal status conference in this matter. At that conference, Defendant Frank Elroy Vennes, Jr. orally moved to continue the trial date in this case due to continuing health issues following surgery in January 2012, as detailed in submissions from Vennes’s treating physicians. Co-defendant James Nathan Fry has indicated, through counsel, that he takes no position on the Motion. The Government objects, arguing generally that Vennes has not set forth sufficient grounds to continue the trial.

The Court finds, under the circumstances, that a continuance is appropriate to ensure that Vennes is fully able to prepare for his defense in this action and cogently and completely participate in all phases of the trial. The Court further finds that the interests of justice in granting a continuance outweigh the best interests of the public and the parties in a speedy trial. 18 U.S.C. § 3161(h)(7)(a).

1. JURY SELECTION will commence in this action on Tuesday, February 12, 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;

2. A JURY TRIAL will commence immediately following jury selection and continue from day to day until concluded;

3. A STATUS CONFERENCE before the undersigned will be held on Friday, January 25, 2013, at 8:00 a.m. in Courtroom 7A, Warren E. Burger Federal Building and United States Courthouse, 316 North Robert Street, St. Paul, Minnesota. Among other things, the Court intends to address the parties’ Motions in Limine (see below) at the status conference;

4. A FINAL PRE-TRIAL CONFERENCE before the undersigned will be held on Monday, February 11, 2013, at 8:00 a.m. in Courtroom 7A, Warren E. Burger Federal Building and United States Courthouse, 316 North Robert Street, St. Paul, Minnesota;

5. Expert disclosures and reports shall be exchanged on or before December 3, 2012;

6. Rebuttal expert disclosures and reports shall be exchanged on or before January 11, 2013;

7. Exhibit and witness lists shall be exchanged and filed on or before December 3, 2012;

8. Witness statements (including memoranda of interviews, Jencks statements, and Giglio materials) shall be exchanged on or before January 11, 2013; 

9. Proposed voir dire questions and proposed jury instructions shall be served and filed on or before December 3, 2012;

10. Motions in Limine shall be served and filed on or before December 3, 2012; 2

11. Responses to Motions in Limine shall be served and filed on or before December 14, 2012; and

12. The period from the date of this Order through February 12, 2013, shall be excluded from the Speedy Trial Act computations in this case.

Dated: August 20, 2012

Richard H. Kyle RICHARD H. KYLE United States District Judge

Motions Hearing and Arraignment Scheduled for Today Are Postponed

Hearings scheduled for today have been rescheduled for September. I have received no word yet whether this will cause the trial to be postponed as well.

New, Superseding Indictment for Vennes & Fry

The Press Release:

More federal charges filed against Frank Vennes in Petters’ Ponzi scheme

MINNEAPOLIS—This week in federal court in St. Paul, a second superseding indictment was filed against Frank Elroy Vennes, Jr., a business associate of and primary fundraiser for Thomas J. Petters, the Minnesota business man convicted in 2009 of orchestrating a multi- billion dollar Ponzi scheme.

Vennes, age 53, of Stuart, Florida, was originally charged on April 20, 2011, in a five-count indictment that alleged he fraudulently raised money from individuals and through hedge funds for investment in Petters Company, Inc. (“PCI”). A superseding indictment was filed on July 18, 2011. The second superseding indictment adds three new counts of wire fraud and one new count of mail fraud. Vennes is now charged with a total of eight counts of securities fraud, three counts of mail fraud, nine counts of wire fraud, three counts of money laundering, three counts of bank fraud, and two counts of making false statements on credit applications.

The new counts, Counts 22-24 and Count 25 of the second superseding indictment, arose out of attempts by Vennes to raise funds to invest in PCI notes through a third-party agent in 2007 and 2008. Vennes, previously convicted on federal narcotics, firearms, and money laundering charges, had difficulty obtaining institutional funding on his own and regularly worked through others to try to raise money from banks and institutional investors. In 2007, he allegedly directed the third-party agent to approach potential investors, seeking funds that he could invest in PCI notes. To that end, at Vennes’ direction, the agent allegedly prepared and distributed by wire and mail, an “executive summary” that described the process by which Vennes previously raised hundreds of millions of dollars for purchase of PCI notes. The“executive summary” falsely described the due diligence Vennes conducted on PCI transactions.

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.

From 1999 through September of 2008, Vennes and his company, Metro Gem, allegedly made more than $80 million related to Metro Gem investments in Petters Company. Vennes’s co-defendant in this case, James Nathan Fry, formed hedge funds with Vennes’s assistance, known as the Arrowhead Funds, that raised funds from investors to invest with PCI.

From 1999 to 2008, Fry and his related entities allegedly obtained more than $41 million in fees related to investment in Petters Company notes. Vennes received “commissions” for the money invested in PCI through the Arrowhead Funds, which, between 2001 and 2008, allegedly netted him more than $48 million. In addition, Vennes purportedly obtained more than $60 million in “commissions” related to investments in PCI notes by the 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 the Palm Beach Funds, those transactions resulting in 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 Petters Company 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, while Fry was aware of Vennes’s criminal history, he purportedly failed to disclose it to institutional investors, although he knew such information was material.

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 the PCI notes’ 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 some of 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 20 years on each wire fraud count and five years on each securities fraud and false statement 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. 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.

Palm Beach Finance Trustee Files Motion to Settle With Minnesota Teen Challenge

The motion can be downloaded at this link (PDF).

Some highlights:

Altogether, as set forth in the complaints filed in the Litigation, the Petters Trustee, Petters Receiver and Liquidating Trustee assert that MTC received in the aggregate, approximately $8,247,319.51 in transfers from the Petters Receivership Defendants, the Vennes Parties and PCI. In particular: 

a) During the period beginning on or about April 1998 and ending on or about December 2007, one or more of the Receivership Defendants made transfers totaling $ 1,979,883.00to MTC; 

b) During the period beginning on or about August 2000 and ending on or about September 2005, PCI made transfers totaling $476,830.00 to MTC; 

c) During the period from February 4, 1998 through May 14, 2003, the Vennes Parties made transfers, including transfers made through the Fidelis Foundation, to or for the benefit of MTC in the amount of approximately $2,817,000; and 

d) During the period beginning on or about June 2004 and ending on or about July 2008, the Vennes Parties made transfers totaling $5,790,606.51 to MTC of which (i) approximately $2,689,606.51 of these transfers are asserted by MTC to be unrelated to donations made by the Vennes Parties and (ii) approximately $ 1,451,000.00 of these transfers were made by Mr, Vennes to MTC to refurbish and repair the Hope Commons Building located in Minneapolis, Minnesota, which is partially occupied by Teen Challenge under a tenant-friendly twenty-five year lease.

The settlement terms:

Cash consideration: upon approval of the Settlement, MTC shall pay or cause to be paid $2,051,000.00 ("Settlement Payment" ) in settlement of the Litigation. The Settlement Payment is comprised of two components, $600,000.00 of the Settlement Payment is directed at settling all claims the Petters Receiver and the Petters Trustee have against MTC directly based on transfers to or for the benefit of MTC made by entities for which Mr. Kelley serves as receiver or trustee (the "Direct Claim Amount" ). The remaining $1,451,000,00 is directed at settling all claims the Petters Trustee and the Liquidating Trustee have against MTC resulting from transfers MTC received from either of the Vennes Parties, either directly or through the Fidelis Foundation ("Indirect Claim Amount" ).

...and...

Allocation of the Settlement Payment with respect to the Indirect Claim Amount: The Petters Trustee, on behalf of PCI, will receive 50% ($725,500,00) of the Indirect Claim Amount on account of his settlement of his claims that predate November 30, 2003. In general, these claims are premised on the theory that MTC was a ) 550(a)(2) subsequent transferee of transfers made initially by PCI to one or both of the Vennes Parties. The remaining 50% ($725,500.00) of the Indirect Claim Amount is allocated 50% to the Petters Trustee on behalf of PCI ($362,750.00) and 50% to the Liquidating Trustee ($362,750.00) ("Palm Beach Settlement Payment" ) according to the Allocation Agreement.

MNTC also has to drop its motion to dismiss.

The settlement motion explains that there would be problems in going ahead with the clawback, including the cost of litigation and discovery and the recently passed Minnesota Uniform Fraudulent Transfer Act (MUFTA). And then there is the complication of the trial in October:

Moreover, a significant focus of the litigation will be the Vennes Parties themselves. To that end, the pending criminal case against Mr. Vennes is currently scheduled for trial in the fall of 2012. The possibility exists that discovery from the Vennes Parties may be delayed until the conclusion of that proceeding.

Will we learn more about the business relationship between Frank Vennes and Minnesota Teen Challenge at the trial? Stay tuned.
 

Palm Beach Finance Trustee Settlement With Vennes Attorney Craig Howse

Read the settlement (link PDF) at the website for the Trustee for Palm Beach Finance.

The settlement payment is $1,225,000 which will be paid out of the Howse and Thompson professional liability insurance policy.

Further clawback action by Liquidating Trustee is barred and the parties have exchanged general releases from future claims. This release includes the "Winning Edge Holding Company" a business entity "affiliated with Mr. Howse".

Mr. Howse has also agreed to cooperate with the Trustee's investigation without serving process or subpoena on Mr. Howse.

If Howse had not settled with the Trustee, the Trustee would likely filed claims against Howse asserting "fraudulent transfer" and "professional negligence", claims Howse has denied.

For more about Mr. Howse, read:

Vennes Lawyer/Lobbyist Craig Howse Continues to Trouble the Waters of Deer Lake

Whatever Happened to Vennes Lawyer/Lobbyist Craig Howse?

The Sorry Saga of Hope Commons

From Karl Bremer at Ripple in Stillwater:

Pawlenty judicial appointment is former lobbyist for convicted money launderer Frank Vennes Jr.

Minnesota Teen Challenge Files Motion to Dismiss PBF Clawback

UPDATE: The lawyers for Barry E. Mukamal,the Liquidating Trustee filed a response to MNTC's motion to dismiss (6/4/12). We will have more about this later.

----------

Minnesota Teen Challenge filed a motion to dismiss the $5,790,606.51 Palm Beach Finance clawback May 10th using  the recently passed statute limiting clawbacks of fraudulent transfers to 2 years instead of 6 years. The retroactive part of the  bill is intended by its sponsors to rescue non-profits from having to cough up the stolen money they received specifically from the Petters Ponzi scheme - Listen:


House_Audio_1384 by spongiforce

Defenders of HF 1384 claim the non-profits rescued by this new statute are unwitting victims of Tom Petters. The analogy they use is Petters, with no criminal record (it was expunged) is like a bank robber dropping his loot into a church's poor box - how were they to know?

When it comes to Minnesota Teen Challenge and other non-profits who received fraudulent transfers of money from Frank Vennes, there's three big problems with that analogy;

1) Frank Vennes was not an anonymous donor to MNTC.

2) He was a board member.

3) It cannot be said that MNTC was unaware that Frank Vennes was a fraudster - he was a convicted money launderer. It is highly unlikely that the MNTC board did not know that Frank Vennes had served time for that crime since he gave one or more lectures (audio here) about it, including one at something called the "God and Money Dinner" with Darrel Amiot who also served on the MNTC board.

This is what Minnesota Teen Challenge Director Rich Scherber said about accepting Vennes funds (2011?) - Note that it only mentions Petters, not Vennes (download PDF here):

Dear Friends of Teen Challenge,

If you have been following the news lately, you may have heard that Petters Companies is under investigation. Those who have walked with Teen Challenge over the years have seen the generosity Tom Petters has shown towards our ministry. Needless to say, we are stunned and saddened by the news we have recently heard. We have been contacted by many of you who are concerned for us and are praying; we are so thankful for your prayers and support.

In an affidavit, Teen Challenge is mentioned as being one of many victims. Our board felt it important to share with you the ministry’s involvement with Petters Companies, and how this situation has affected us.

About seven years ago, one of our major donors recommended that we consider building a strong reserve fund for Teen Challenge – a nest egg –for use in case of emergency or for program expansion. The donor suggested that we work with the Harvest Fund, and later the Fidelis Foundation, organizations that work with many other Christian ministries, and consider investing some of his large charitable gifts in the Petters Companies, a once strong, respected corporate entity in Minnesota.

From the very beginning of our investments, our board of directors adamantly insisted that no other general donor funds ever be transferred into those notes. For seven years this investment bore a healthy return and helped us expand our programming and outreach. In the past year, we have been using the interest on these funds to help underwrite the costs of our statewide programs.

Strong Christian stewardship is one of our embraced values. It is important for you to know that our board is very prudent and careful with all contributions that come into the ministry. We recognize that many of your contributions come at great sacrifice. This situation has caught hundreds of other investors and ministries by surprise and we are in the process of assessing its impact on the ministry.

As always, your prayers and support of our Christian mission are much appreciated.

Sincerely,

Rich Scherber

Executive Director

I contacted MN Teen Challenge. The spokesperson had no comment on the motion to dismiss.

Below is the MNTC letter (click on the letter to make it larger:

Twin Cities Business Magazine Article Repeats Tom Petters' Lies

A pathetic excuse for journalism - but if you must read it, here is the link.

I read the whole thing and it's the same old BS Petters told at his trial - here's the spoiler: Deanna Coleman was responsible for everything. Blame the woman.

Ho-hum.

I'm guessing this ridiculous article is part of the emerging counter-narrative I wrote about over a month ago.

 UPDATE: David Brauer at MinnPost reports that Twin Cities Business had a contract including a “pre-publication review” agreement with Tom Petters:

Getting a sensitive source to cooperate is often a matter of flattery, diplomacy and pressure; the challenge is not to sell out in pursuit of the story. Although Kurschner wrote a full-page editor’s note detailing the six-month saga of securing Petters’ cooperation, he did not disclose to readers the unusual provision that might have been the deal-clincher.

Pathetic.

Did Tom Petters Personally Lobby President Bush for Vennes Pardon?

Quote from Strib article about recent interview with Tom Petters:

"I was grateful for the good life I had. I had the opportunity to meet five U.S. presidents, I have an incredible amount of gratitude for the people who helped me," Petters said. "Not a day went by in which I ever knowingly defrauded anyone."

Tom Petters knew about the pardon.

Attorney for Palm Beach Finance Bankruptcy Trustee on Passage of HF 1384 "Unfair and Inequitable "

Statement by attorney Michael Budwick, representing Barry Mukamal Trustee of the bankrupt Palm Beach Finance hedge funds:

We believe it is unfair and inequitable to the victims of the Petters fraud to modify retroactively an existing statutory cause of action, particularly after we have invested substantial resources preparing and filing scores of lawsuits. In the coming weeks we intend to review the appropriateness of retroactive application.

According to the Strib, Doug Kelly is considering challenging the constitutionality of the law.

Developing...

Article About M&I Bank

Milwaukee Journal Sentinel Online business article titled "Lawsuit over Ponzi scheme seeks $1 billion from M&I".

The article quotes attorneys involved in the Palm Beach Finance Partners bankruptcy, but does not mention Frank Vennes. Quote from the complaint in the article:

"From Jan. 1, 2003, through Aug. 31, 2008, the astronomical sum of $35.35 billion was deposited into the M&I account"

Quote from the article:

The lawsuit, filed late last year, alleges that Petters could not have kept his Minneapolis-based fraud afloat had M&I enforced an agreement it signed that was designed to protect a Florida investor group that unwittingly helped finance the Petters scheme.

The MN DOJ had this to say about M&I and Vennes/Fry:

Accordingly, the first two false statements set out in the Bill of Particulars under Count 26 - “FRY testified that he believed that retailers paid the custodian bank directly until September 24, 2008" and “FRY later testified that he believed that retailers paid the custodian bank directly until he learned about the clearing account, but he was told by FRANK VENNES that the clearing account was controlled by M&I Bank not Petters” will both be proven false by the introduction of evidence, amounting to proof beyond a reasonable doubt, that defendant Fry knew from the earliest days of his involvement with Frank Vennes and Tom Petters that money to pay off promissory notes ALWAYS came from PCI and NEVER came from the retailers.

The complaint against BMO Harris Bank regarding M&I (PDF) at the PBFP bankruptcy website.

A report (PDF) by Kinetic Partners that mentions M&I bank.

Bill in Minnesota Legislature to Block Petters Clawbacks

The Star Tribune reports:

In a move that could limit financial recoveries in the Tom Petters Ponzi scheme, the Minnesota Senate on Thursday approved legislation to protect nonprofit organizations from legal attempts to recover or "claw back" donations that stem from illegal activities.

Sen. Benjamin Kruse, R-Brooklyn Park, said the bill attempts to "strike a balance" between the victims on both sides of a crime like the $3.65 billion fraud operated under the watch of Petters, who now is in prison for his crimes. The bill could relieve strapped nonprofits from having to repay an estimated $200 million in clawback payments.

But the legislation could have notable impact on collection efforts in the Petters bankruptcy case, where trustee Doug Kelley is attempting to recover so-called false profits and other proceeds from investors and those who received donations from Petters.
Kelley, who has filed clawback lawsuits against several nonprofits, said he may lose the ability to collect more than $200 million because the new legislation establishes a two-year statute of limitations on fraudulent financial transfers.

Read the whole thing.

I'm not sure what effect this bill will have on non-profits and ministries such as Minnesota Teen Challenge that received fraudulent transfers from Frank Vennes entities. When I find out, I'll update this developing story.

Minnesota Teen Challenge Has No Comment on Clawbacks

I emailed the spokeswoman at MNTC about the $5,790,606.51 clawback. This is the terse reply:

MNTC has no comment on the clawbacks.

I'm tempted to ask why God saved MNTC folks from the 35W bridge collapse, but God didn't warn MNTC that a fellow who sat on their board was involved in a massive Ponzi scheme... but, I'd probably get a "no comment" on that too.

UPDATE: Minnesota House Rep. Jim Abeler (R-Anoka) wants to help bail out the Ponzi-clawback stricken Minnesota Teen Challenge with over $4 million in taxpayers dollars. Read about it at Dump Bachmann - HERE & HERE.

Pastor John Piper Can't Stop Blaming God for Tornadoes

Somebody who allows himself to get taken in by a convicted fraudster probably shouldn't claim to be an expert on anything, let alone natural disasters, but the Desiring God Ministry's spiritual leader obviously can't help himself. From his blog:

We do not ascribe such independent power to Mother Nature or to the devil. God alone has the last say in where and how the wind blows. If a tornado twists at 175 miles an hour and stays on the ground like a massive lawnmower for 50 miles, God gave the command.

Piper wades deep into his Bible and comes back out this verdict:

But stir into your mental framework this truth: When a time for judgment comes, it usually includes, and begins with, God’s own people. That’s what the apostle Peter says.

“It is time for judgment to begin at the household of God; and if it begins with us, what will be the outcome for those who do not obey the gospel of God?” (1 Peter 4:17; Jeremiah 25:29; Ezekiel 9:6; Amos 3:2).

Therefore, God’s will for America under his mighty hand, is that every Christian, every Jew, every Muslim, every person of every religion or non-religion, turn from sin and come to Jesus Christ for forgiveness and eternal life. Jesus rules the wind. The tornadoes were his.

This isn't the first time Pastor Piper stuck his big foot in his mouth about tornadoes - a while back, Dr. John Piper claimed a tornado was a warning to Lutherans to not ordain gay ministers.

Maybe instead of lecturing people about "sin" (masturbation, homosexuality etc.), John Piper can perform a real public service educating the public on how to avoid being ripped off by faith-based affinity fraud. Piper could tell us how he got roped into the Hope Commons debacle.

Forbes Announces the Last Prosecution of Meltdown Era Ponzi Schemes

Forbes:

The conviction of [Allen] Stanford brings to an end the U.S. government’s prosecution of financiers whose large Ponzi schemes unraveled during the credit crisis. Madoff, Stanford, Tom Petters ($3.7 billion Ponzi), Scott Rothsetein ($1.2 billion Ponzi) and Marc Drier ($400 million), had nothing to do with financial shenanigans that brought the U.S. financial system to its knees, but they somehow typified the culture of leverage and investor gullibility that nearly destroyed the U.S. economy.

I guess self-described Petters financier Frank Vennes is bush league by comparison.

Vennes, indicted April 20, 2011 goes on trial October 1, 2012.

New Date for Vennes Trial - October 1, 2012

After an informal scheduling conference, Judge Kyle has this new scheduling order:

JURY SELECTION will commence in this action on Thursday, September 27, 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 on Monday, October 1, 2012, and continue from day to day until concluded;

Change in Comment Policy for Vennes Info

I have decided to disable the comments on this blog. I am very busy and have very little time to moderate comments.

If you have information to share with me, please send it to - ken [dot] avidor [at} gmail (dot) com. If you have information about criminal activities, go directly to law enforcement.

Thanks.

SEC Settlement With Arrowhead's Michelle Palm - Barred From Investment Industry

Hedgefund.net:

The Securities and Exchange Commission has barred from the investment industry a former executive at a hedge fund firm connected with jailed Minnesota businessman Tom Petters.

Michelle Palm was barred from “association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent” in an order issued last week by the SEC

Read the SEC order HERE (PDF). The order reiterates the following allegations against Michelle Palm and James Fry:

• Falsely assured investors that the inventory financing transactions in which the funds invested were structured in such a way that after the retailers received their merchandise from vendors, they would send their payments for the merchandise directly into 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.

• Failed to disclose to investors and potential investors the facts that Petters was having difficulties making payments on certain of the notes held by the funds and that they engaged in a series of note extensions with Petters, beginning around February 2008, in order to hide that fact.

• 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.

Judge Keyes Recommends Dismissal of 3 Counts Against Fry

David Phelps at the Strib reports Magistrate Judge Jeffrey Keyes has recommended 3 counts against Jim Fry be dismissed because they were duplicitious. The recommendation goes to Judge Kyle.

UPDATE: Read Judge Keyes's recommendation here (PDF).

The Judge With Michele Bachmann Eyes

Jamie Anderson, formerly an attorney at Howse & Thompson and lobbyist for Frank Vennes, appointed to the Minnesota courts by former presidential candidate Tim Pawlenty.

Photo from her judge profile. Seen here side by side with former presidential candidate Michele Bachmann:



UPDATE: I forgot to link to Andy Birkey's excellent MnIndy article about Judge Jamie Anderson which has more info - check it out.

The DOJ Response to 2nd Motion of James Fry for Dismissal of Charges

In the pretrial hearings leading up to the Vennes trial (May 18th), we will learn a little more about the Government's case. Yesterday, prosecutors responded to a motion to dismiss some of the charges (PDF).

A bunch of interesting stuff in there including this information about the Arrowhead "pitch books":

Count 25

In Count 25, defendant Fry is charged with making false statements during his first day of testimony under oath before the SEC, October 25, 2010, during which defendant Fry was questioned about several documents that had been disseminated to investors by Arrowhead Capital Finance, Limited. The documents were riddled with inaccuracies and misrepresentations. When confronted with them by the SEC, the defendant sought to blame his employee, Lxxx Rxxxxxx. He claimed that the employee had, in effect, gone off and marketed the Arrowhead funds on her own, without the defendant’s approval, and in some cases without his knowledge. This version of events was not just false, it was knowingly false, and at trial the government will prove it knowingly false beyond a reasonable doubt. It was the defendant who approved the misstatements and omissionsthat were served up to investors and potential investors, not the defendant’s staff.

The defendant began by claiming, as set forth in the Bill of Particulars, that his employee was engaged, without his knowledge, in “cold calling” of potential investors. Having, he apparently believed, established that this employee was in communication with investors without the defendant’s knowledge or consent, the defendant then continued, as specified in the Bill of Particulars, by claiming that the so-called “pitch books” this employee sent out were not approved for distribution, and further claimed that he had had numerous conversations with this employee in which he told her that the pitch books were inaccurate. In order to buttress his claim that the pitch books were unapproved because of their inaccuracy, the defendant claimed, also as specified in the Bill of Particulars, that the pitch books were not distributed “wholesale” by Arrowhead, and that as to the few pitch books that were distributed by this rogue employee, he, the defendant, quickly stopped the employee’s distribution of them.

All of these statements have in common the defendant’s claim that his employee, operating on her own, made false statements and omissions to investors without his knowledge. The government’s proof of falsity as to each alleged false statement will be the same - that the employee in question was closely supervised; that, more particularly, communications with investors were undertaken with defendant Fry’s knowledge, and that communications with investors were personally vetted by the defendant; and finally, and most specifically, that the content of pitch books was reviewed closely by the defendant, and that pitch books were not sent to investors before the contents of the books were reviewed and approved by the defendant.

One of the most important of the misrepresentations in the “pitch books” was the claim that when a PCI promissory note was paid off, the payments came directly from a retailer to Arrowhead, without passing through PCI, referred to in the Superseding Indictment as the “Flow of Funds” misrepresentation. Superseding Indictment (“SI”) at ¶ 31 (“FRY, and others acting at his direction, falsely represented to investors that when a ‘Big Box’ retailer purchased consumer electronics or other goods from PCI, in a transaction that was financed by the Arrowhead Funds, the retailer made payment for those goods directly to a bank account controlled by Arrowhead Management.”) In fact, the money actually came from PCI. Id. (“In truth and in fact, the Arrowhead Funds received all their ‘payments’ for the purported consumer goods from PCI and not from the retailers who were purportedly buying the goods being financed.”) As explained in the Superseding Indictment, this misrepresentation was important to investors and potential investors “because it prevented investors from accurately assessing investment risk in two ways. First, the misrepresentation that funds were being received from retailers falsely assured investors that genuine transactions were taking place. Second, it falsely assured investors that Arrowhead Management could prevent PCI from simply converting the investors' money for its own use.” SI ¶ 32. The defendant’s attempts to falsely distance himself from his employee’s marketing efforts are also an effort to distance himself from the falsehoods in the “pitch books” about flow of funds. This issue will be taken up in more detail in the discussion of Count 26, below.

In sum, the same proof will be used as to all of the statements alleged to be false in Count 25, and Count 25 is therefore not duplicitous.

COUNT 26

Fry also made false statements during his second day of testimony, October 26, 2010, which are charged in Count 26. Count 26 of the Superseding Indictment alleges false statements related to the “flow of funds” of the Arrowhead investments. The importance of the flow of funds to investors is alleged with specificity in the Superseding Indictment and will be proven at trial. The primary significance of the flow of funds, as represented to Arrowhead investors by defendant or those acting at his direction, was that it gave the investors the false assurance that the deals underlying the PCI Notes were genuine. Arrowhead investors were led to believe that Arrowhead was seeing hundreds of millions of dollars in payments from retailers such as Sam’s Club and Costco go into Arrowhead’s bank account, indicating, falsely, that there were hundreds of millions of dollars of real consumer electronics deals. Had investors learned that the payments came from Tom Petters and that Arrowhead never saw payments from these retailers, the investors would have realized that Petters could perpetrate a fraud scheme by using new investor money to pay off earlier investors - as, indeed, happened. In other words, the purported receipt by Arrowhead of money directly from retailers was anti-fraud insurance for investors.

Accordingly, the first two false statements set out in the Bill of Particulars under Count 26 - “FRY testified that he believed that retailers paid the custodian bank directly until September 24, 2008" and “FRY later testified that he believed that retailers paid the custodian bank directly until he learned about the clearing account, but he was told by FRANK VENNES that the clearing account was controlled by M&I Bank not Petters” will both be proven false by the introduction of evidence, amounting to proof beyond a reasonable doubt, that defendant Fry knew from the earliest days of his involvement with Frank Vennes and Tom Petters that money to pay off promissory notes ALWAYS came from PCI and NEVER came from the retailers. The same is true of the fourth statement set out in the Bill of Particulars under Count 26, “FRY testified that he was not aware that retailers made payment to a Petters bank account instead of the funds’ collateral accounts.” Like the first two statements, proof of this statement’s falsity will be shown by evidence of defendant Fry’s knowledge of the true flow of funds; from Petters to Arrowhead, rather than from the retailers to Arrowhead.

As to the third statement whose falsity is alleged in the Bill of Particulars - the assertion that “FRY testified that Frank Vennes was no longer involved with ACM CORP’s Petters notes by 2001 - he had nothing to do with the transactions, was no longer the go- between and had no authority” - this too bears on flow of funds. Co-defendant Vennes continued to be the intermediary between Arrowhead and PCI. Defendant Fry was well aware of the sensitivity, especially from institutional investors, about any involvement by co-defendant Vennes in the Arrowhead investment. As noted above, however, by falsely describing the flow of funds, and omitting any description of co-defendant Vennes’s involvement, defendant Fry was again able to assuage the concerns of his investors.

Finally, the fifth false statement in Count 26, - “FRY testified that he was not aware that LXXX RXXXXXX distributed pitch books to potential investors” - is again, an attempt by the defendant to absolve himself of responsibility for the falsehoods in the “pitch books,” including the falsehoods about the flow of funds

COUNT 27

Finally, on November 5, 2010, defendant Fry, in his continuing under-oath testimony before the SEC, repeated the false statements he had made on October 26 about the flow of funds. On November 5, 2010, as stated in the Bill of Particulars, “FRY testified that he was never aware that Petters Company, Inc., not the retailers, wired money into ACP II’s [Arrowhead Capital Partners II] collateral account”; also on November 5, 2010 “FRY testified that neither Lxxxxxx Sxxxxxx nor Mxxxxxxx Pxxx ever informed him that Petters Company Inc. was wiring money into the funds’ collateral accounts.” Finally, on November 5, 2010 “FRY testified that he was never aware that Petters Company Inc. wired money in payment of EF [Elistone Fund] Petters notes.”
All of these statements will be shown to be false by the introduction of evidence showing that defendant Fry was well aware of the origin of the money used to pay off his funds’ promissory notes. The second false statement in Count 27 alleges the falsity of the defendant’s claim that two specific, named employees never informed him that money was being wired from Petters Company, Inc. into the Arrowhead collateral accounts. These two employees are not mentioned in any other false statement count; however, proof that these two employees told defendant Fry that money was coming from Petters and not from the retailers will be introduced to prove not only the falsity of this particular statement, but also to prove the falsity of all the defendant’s false claims that he was unaware of the true flow of funds. Therefore, the same facts will be used to prove the falsity of all these statements, and the inclusion of three false statements in Count 27 is not duplicitousness, because they are all part of the same scheme to conceal defendant’s knowledge of misrepresentations to investors regarding Arrowhead’s investment in PCI Notes.

There's a hearing scheduled for February 2nd.

UPDATE: The hearing took place today.

Website Has Palm Beach Finance Clawback Info

Bookmark palmbeachfinanceinfo.com. This is what the website is about:

CASE INFORMATION

On November 30, 2009, voluntary Chapter 11 petitions were filed for Palm Beach Finance Partners, L.P. ("PBF") and Palm Beach Finance II, L.P. ("PBF II," collectively with PBF, the "Debtors"). These cases are jointly administered under Case No. 09-36379-BKC-PGH. On February 3, 2010, the Office of the United States Trustee appointed Barry Mukamal (the “Trustee”) to serve as Chapter 11 Trustee for the Debtors. Shortly thereafter, the Trustee retained Meland Russin & Budwick, P.A. ("MRB") to represent him.

This is the website established and maintained by the Trustee to provide the limited partners of the Debtors as well other parties in interest updated information regarding significant events that occur in these jointly administered bankruptcy cases. This site is for informational purposes only, and while it has links to certain relevant pleadings filed in these cases, this website is not a replacement for the Bankruptcy Court's official docket.

Of special interest are the Adversary Proceedings.

UPDATE: Vennes letters from the docs (click to make them bigger):