Federal Jury Convicts Mound Man of Fraud in Connection with Peters Ponzi Scheme

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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.

Despite Vennes’s intimate involvement in all of the Arrowhead Funds’ dealings with Petters and PCI, 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. All of the transactions between Arrowhead and PCI went through Vennes. And, although Vennes was in the middle of every single transaction between Arrowhead and PCI, Fry concealed Vennes’s role and criminal background from investors.

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.

Finally, Fry lied to investors about significant problems with the PCI investments in 2007  and 2008. Fry told investors that the notes were “90-day notes,” meaning that they were paid off in 90 days. 

Beginning in the fall of 2007, payments on all the PCI notes held by Arrowhead became substantially later than 90 days, and almost half of the notes were not paid after 180 days and had to be extended to avoid going into default. Fry concealed this information from his investors. The concealment of this information was significant to new investors, who were deciding whether to place money with Arrowhead, and existing investors, who were assessing whether to withdraw from Arrowhead.

Fry also lied to federal authorities after the collapse of the Petters Ponzi scheme. In 2010, Fry gave sworn testimony before the SEC, and during that testimony, he claimed that he was unaware that the Arrowhead Funds were not paid directly from the retailers and that marketing materials containing false information were distributed.

Vennes pleaded guilty to aiding and abetting Fry in connection with these misrepresentations to the Arrowhead Funds’ investors.

For his crimes, 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.

United  States District Court Judge Richard H. Kyle will determine Fry’s sentence at a future hearing,  yet to be scheduled.

This case was the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigation, and the U.S. Postal Inspection Service. It was 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 effort to investigate and prosecute financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.