A federal jury in St. Paul has found James Nathan Fry, a 59-year-old hedge fund manager from Mound, guilty of fraudulently raising money from individuals and through mutual funds for investment in Petters Company, Inc. (PCI).
Fry was convicted on five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the United States Securities and Exchange Commission (SEC).
According to the evidence presented at trial, Fry raised hundreds of millions of dollars from investors using two hedge funds known as the Arrowhead Funds, which he then provided to PCI in exchange for substantial interest payments. Fry collected more than $30 million in fees from the money he raised from investors and provided to PCI.
Fry formed the Arrowhead Funds in collaboration with Frank Elroy Vennes, Jr. Vennes began raising money to invest with Petters in 1995, only a few years after he was released from federal prison, where he had been serving a sentence for money laundering, firearms, and narcotics charges. Fry used the Arrowhead Funds to solicit money from investors to invest exclusively in financing for PCI. All of the Arrowhead Funds’ transactions with PCI were done through Vennes, and any communication between Fry and Petters or his company had to go through Vennes.
Fry concealed Vennes’s involvement in the PCI transactions because he knew that investors would learn about Vennes’s criminal background and be deterred from investing. Over approximately eight years, Fry obtained hundreds of millions of dollars from investors, which he then provided to PCI, purportedly to finance the purchase of consumer electronics that Petters would later resell at a profit.
Fry also lied to investors by telling them that the Arrowhead Funds were getting paid directly by the big box retailers, which gave investors the false impression that there were real transactions underlying the PCI investments. In fact, the Arrowhead Funds never received a single payment from a retailer, and all payments on the PCI promissory notes came from PCI, which allowed the Petters Ponzi scheme to expand for years until it finally collapsed.
Fry faces a potential maximum penalty of 20 years on each count of wire fraud and five years on each count of securities fraud and making false statements. Vennes pleaded guilty to aiding and abetting Fry in connection with these misrepresentations to the Arrowhead Funds’ investors.
The case marks the latest development in the ongoing investigation into the Petters Ponzi scheme, which collapsed in 2008 and resulted in losses of hundreds of millions of dollars for investors.
Fry, whose real name is James Nathan Fry, will be sentenced at a later date.
Mandatory Facts:
Defendant: James Nathan Fry
Criminal Charges: Five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the SEC
City and State: St. Paul, Minnesota
Date: Not specified
Sentence: To be determined
Dollar Amounts: Over $30 million in fees, hundreds of millions of dollars raised from investors
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Key Facts
- State: Minnesota
- Category: Fraud & Financial Crimes
- Source: DOJ Press Release â†â€â€
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