A Minnesota hedge fund manager will spend the next 17 years in prison for his role in soliciting investors for the $3.65 billion Ponzi scheme perpetrated by Thomas Petters - the largest Ponzi scheme in Minnesota history and third-largest in U.S. history behind only Bernard Madoff and Allen Stanford. James Fry, 59, was sentenced by U.S. District Judge Richard Kyle to a 17.5-year prison term. Fry was convicted by a federal jury this summer of twelve counts of wire fraud and securities fraud - each of which carried a maximum prison term of twenty years. Prosecutors had been seeking a 25-year term for Fry.
Fry was the CEO of Arrowhead Capital Management, LLC ("Arrowhead"), which served as an investment advisor to a number of hedge funds. Beginning in 1999, Fry began working with Frank Vennes - who had a felony criminal record that was withheld from investors - to raise funds to invest in promissory notes issued by Petters' company, Petters Company Inc. ("PCI"). PCI raised billions of dollars from investors who believed their funds were being used by PCI to purchase and resale consumer electronics to big-box retailers.
However, despite learning that Petters did not have the large-scale deals he purported to have with big box retailers, Fry was accused of continuing to solicit millions of dollars from investors to entrust with Petters. Indeed, while Fry told investors that a 'big-box' retailer would make payments directly to an Arrowhead bank account, the reality was that Arrowhead received all payments from PCI. In total, Fry received more than $41 million in commissions alone from PCI, and authorities attributed the losses attributable to Fry's funds at Arrowhead at close to $130 million.
Vennes, who served as Fry's link to Petters' scheme, is scheduled to be sentenced October 18th. Pursuant to his plea agreement reached with prosecutors, Vennes faces a maximum potential sentecne of 15 years.