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):

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".