New Indictments on Old Securities Fraud Case

St. Paul, MNAn alleged securities fraud scheme that's been percolating for a few years continues to evolve, following the indictment of yet another participant on multiple counts of fraud. The St. Paul Pioneer Press reported Monday that James Fry, of Arrowhead Capital Management, is accused of bringing millions of dollars worth of investor funds into an alleged Ponzi scheme run by Tom Petters.

The alleged Ponzi scheme operated for a period of nine years starting in 1999, according to court filings. The alleged stock fraud scheme saw Arrowhead receive gross transfers from Petters valued at $5.1 billion. Investors were led to believe that the enterprise Petters was leading was involved in the buying and selling of large quantities of consumer electronics. Investor funds were to be used as short-term investments to facilitate those transactions.

In reality, according to court filings, new money was being used to compensate original investors. Incoming investments were also used to fund the operations together with other business interests, and the lifestyle of Tom Petters, according to the stock investment fraud indictment.

The stocks and securities fraud scheme came to an abrupt end in 2008, with liabilities of $3.5 billion.

Another participant in the alleged stock fraud scheme, Frank Vennes Jr., was originally indicted in April. This month new charges against him were announced. The St. Paul Pioneer Press noted that Vennes Jr. was having difficulty securing institutional funding due to a previous felony conviction.

Fry faces five counts of securities fraud, four counts of wire fraud and three counts of making false statements to investigators from the US Securities and Exchange Commission.

Another alleged participant, Michelle Webster Palm, was reported to have pled guilty to securities fraud and making false statements.

The St. Paul Pioneer Press reported that in 2010 a trustee handling the bankruptcy proceedings of Petters Co. Inc. launched securities fraud litigation against Arrowhead, petitioning for the return of more than $105 million in what were described as false profits.