Grand Jury indictment charges Frank Vennes Jr. with 24 counts of fraud, money laundering and making false statements

New indictment alleges Bachmann's friend and donor was in Petters Ponzi from 2001-2008, same years he sought a presidential pardon

By Karl Bremer

The Justice Department filed a superseding indictment against Frank Elroy Vennes Jr. in U.S. District Court in Minneapolis July 19 that brings to 24 the number of fraud, money laundering and false-statement charges the politically connected former felon now faces. The charges, which include the four counts of fraud and one count of money laundering in the indictment filed against Vennes April 20, are connected to Vennes’ alleged involvement in the $3.5-billion Tom Petters Ponzi scheme.

The superseding indictment also charges James Nathan Fry of Orono, MN, with nine counts of fraud and three counts of making a false statement to the U.S. Securities and Exchange Commission during the Petters investigation.

A PARDON AND A PONZI

Vennes’ effort to secure a presidential pardon for federal money laundering and other crimes from the 1980s, along with his deep financial and personal connections to Minnesota politicians, was the subject of a recent Ripple in Stillwater investigation. Vennes’ political friends include presidential candidates Congresswoman Michele Bachmann, presidential candidate and former Minnesota governor Tim Pawlenty, former U.S. Senator Norm Coleman, former state GOP Chair Ron Eibensteiner, former Vice President Walter Mondale, and former State Sen. Ted Mondale, among others.

The indictment alleges that Vennes’ and Fry’s criminal fraud activity in the Petters Ponzi began in 2001 and continued until September 2008, when his and Petters’ homes were raided by federal agents. During that entire time, Vennes was vigorously trying to wipe his past criminal record clean with a pardon and soliciting letters of recommendation for a pardon from politicians to whom he and his family and lawyer were donating tens of thousands of dollars in campaign contributions.

Like Vennes, Fry has contributed heavily to Republican candidates and political funds.

The Petters Ponzi scheme involved investments of billions of dollars in fraudulent Petters Corporation Inc. (PCI) promissory notes. Investors were told their funds would be used to finance “vast amounts of consumer electronics and other consumer merchandise” to be sold to big-box retailers such as Sam’s Club and CostCo.

“In reality,” the indictment states, “the transactions underlying virtually all PCI notes were fictitious. Documents evidencing the purported transactions were fabricated by Petters’ criminal associates, and the purported suppliers of the electronics goods were shell companies acting in concert with Petters. No retailers participated in the transactions underlying the PCI notes and there were no purchases and resales of consumer electronics or other consumer merchandise. Instead, Petters diverted hundreds of millions of dollars to his own purposes and paid purported profits to investors with money raised from the sale of new notes.”

“Petters’ inventory finance operation was a Ponzi scheme,” the indictment charges.

According to the indictment, Vennes began raising money from investors for PCI through his own company, Metro Gem, in 1995. From 1999 through September 2008, Vennes engaged in approximately 748 transactions involving hundreds of millions of dollars of money invested in PCI notes.

Between 2001 and 2008, the indictment states, Vennes made more than $80 million related to Metro Gem investments in PCI notes. That was in addition to the $60 million in commissions he raked in from the Palm Beach Funds investments in PCI.

Around 1998, the indictment states, Vennes began seeking larger sources of financing for Petters and PCI. But his previous convictions on federal money laundering, cocaine and gun trafficking charges prohibited him from obtaining institutional financing, so he began to work with others to set up hedge funds through which he could solicit institutional investments in PCI notes.

PALM BEACH FUNDS

Two of those people were David William Harrold and Bruce Francis Prevost, owners and managers of Palm Beach, FL-based and offshore hedge funds, referred to as the “Palm Beach Funds.” Vennes recruited the two to raise money for Petters and PCI and, court documents state, from 2002 through September 2008, the Palm Beach Funds invested approximately $8 billion in PCI notes. The arrangement netted Harrold and Prevost more than $58 million in fees under their agreements with the Palm Beach Funds. Vennes earned more than $60 million in commissions paid by Petters and/or PCI for the Palm Beach Fund investments based on a percentage of the money he attracted.

Harrold and Prevost were indicted along with Vennes in April. They pleaded guilty to securities fraud in the scheme and reportedly are cooperating with federal authorities.

ARROWHEAD FUNDS

Vennes also collaborated with Fry, CEO of hedge fund investment advisors Arrowhead Capital Management, LLC, to raise money for Petters and PCI. From 1999-2008, according to the indictment, Arrowhead arranged the investment of more than $500 million of its investors’ funds in PCI. As of September 2008, Arrowhead funds had about $130 million invested in PCI notes. Vennes was the intermediary in almost every transaction between Arrowhead and PCI and made more than $48 million in “commissions” on the investments, according to the indictment. Fry made more than $41 million in fees from Arrowhead’s investments in PCI notes.

Both Vennes and Fry made “material misrepresentations and concealed material information about the PCI investments in order to induce investors,” the indictment charges. Also, the indictment states, Fry failed to disclose Vennes’ criminal record to institutional investors even though he knew such information was material to investors.

"By no later than August of 2008," the indictment states, “Vennes had been advised by Petters that there was fraud at PCI and that the PCI notes were “compromised;” Vennes knew that PCI had substantial problems paying more than a billion dollars of PCI Notes held by the Arrowhead Funds, the Palm Beach Funds and Metro Gem; Vennes knew that money invested with PCI was being used to pay existing PCI investors, rather than for financing consumer electronics tranactions; and Vennes was attempting to liquidate Metro Gem’s investments with PCI below the stated value of the notes. All of this information was material to Metro Gem investors. Vennes did not disclose it to investors.”

Vennes’ pardon petition was sitting at the White House by that time, apparently approved and ready to be signed later that year. If Vennes knew what the indictment says he knew about the Petters Ponzi at the time, he was probably more than a little anxious to get President Bush’s signature on it.

Now, instead of a pardon, Vennes faces a total of 330 years in prison on eight counts of securities fraud, two counts of mail fraud, six counts of wire fraud, three counts of money laundering, three counts of bank fraud and two counts of making false statements on credit applications.

Courtroom sketch of Frank Vennes Jr. by Ken Avidor

Lawyers, Guns & Money, Pt. 3: Buying Influence or Access?

Frank Vennes Jr. case highlights flaws in

 the presidential pardon process

A Ripple in Stillwater Exclusive Report

By Karl Bremer

The pardon trail of Frank Elroy Vennes Jr. is littered with more than $217,000 in political campaign contributions and letters of recommendation for presidential clemency from the very same politicians and political officers who benefited from Vennes’ thousands. The timing of many of these contributions is in close proximity to activity on his pardon petition, political letters of support or other events, such as Karl Rove’s fundraiser for Bachmann in Stillwater July 21, 2006.

Was Vennes trying to buy political support for a presidential pardon through the disbursement of tens of thousands of dollars in campaign contributions to politicians who might be sympathetic to his plight? While there is no conclusive evidence to prove that Vennes was buying influence with politicians who supported his pardon efforts, it’s hard to ignore the fact that he donated so much money to those whose support he sought and received, particularly those like Congresswoman Michele Bachmann (MN-6) for whom he wasn’t even a constituent. At the very least, money appears to have bought the ear of Minnesota politicians for Vennes.

“On the one hand, it’s not unusual for a member of Congress to write letters on behalf of their constituents, and these letters are sometimes helpful to the process,” says a former government official familiar with the pardon process. “On the other hand, it would obviously be problematic if these were made in exchange for campaign contributions, whether express or implied. It is highly unusual for someone to write a letter on behalf of a nonconstituent,” the official noted.

Indeed, the House Ethics Manual addresses that issue specifically.

“If a member has personal knowledge regarding a matter or an individual, he or she may always communicate that knowledge to agency officials,” the manual states. “As a general matter, however, a member should not devote official resources to casework for individuals who live outside the district.”

Bachmann—by far the largest recipient of Vennes/Howse campaign contributions with $50,200 total coming from both families—has yet to explain how much she knew about Vennes’ personal finances, as she indicated she did in her 2007 pardon recommendation letter. Nor has Bachmann ever explained why she abandoned her personal friend just weeks before the 2008 election—but 33 months before he was ever even indicted.

While Bachmann wasted no time in trying to wash her hands of Vennes and a portion of his money when the Petters Ponzi came tumbling down, neither Norm Coleman, Tim Pawlenty nor Ron Eibensteiner ever withdrew their recommendations for Vennes’ pardon nor dispensed with his cash. Did Bachmann know something about Vennes’ involvement with Petters back then that the others did not?

THE TEEN CHALLENGE CONNECTION

Minnesota Republicans who once professed their faith in this supposedly rehabilitated, born-again convicted felon—and took tens of thousands of dollars in campaign contributions from him—now are reluctant to talk much about their relationship with him. Former DFL State Sen. Ted Mondale and his father, former Vice President Walter Mondale, who apparently helped get Vennes started in his pardon process, declined interview requests.

Bachmann and Pawlenty—both of whom are running for president—and Coleman have refused repeatedly to respond to inquiries from myself about Frank Vennes Jr.  But one common thread connects them—and former President George W. Bush—to the convicted money launderer: the controversial faith-based drug/alcohol rehab ministry Teen Challenge.

Bachmann responded vaguely to WCCO-TV’s Esme Murphy in October 2008 about her relationship with Vennes, which she said began with Minnesota Teen Challenge:



“I knew Frank Vennes through Teen Challenge and saw that he had made a remarkable transformation in his life, and he told me his goal was to give as much money as he could to charity so that more people could find freedom in their life. And I thought that was great, so I supported him.”

Coleman, responding to an inquiry about Frank Vennes Jr. from MinnPost reporter Eric Black last April, also said he knew Vennes through Teen Challenge but added: “I am not privy to, or aware of, what role he may have played in the Petters saga. My advocacy for Frank nearly a decade ago pre-dated anything I am aware of that had to do with Tom Petters.”

Although he has never been clear about his relationship with Vennes, Pawlenty shares a common interest with Vennes in Minnesota Teen Challenge too. Besides steering Minnesota Teen Challenge investments to Petters’ company, Vennes served on the Minnesota Teen Challenge Board of Directors with Mary Pawlenty, Tim Pawlenty’s wife. And in 2009, Pawlenty donated nearly $86,000 from his defunct gubernatorial campaign fund to Minnesota Teen Challenge.

Teen Challenge was a favorite charity of President Bush’s as well. He spoke highly of the organization in the 2006 video below. He went to bat for them in his first term as governor of Texas when a state agency threatened to take away Teen Challenge’s operating license for failing to follow regulations, according to this Frontline report. Bush was keynote speaker at the 2010 Teen Challenge Wisconsin Banquet in Milwaukee.

‘TAKE A SECOND LOOK’

If Vennes was going to be granted his pardon by President Bush before he left office, as Vennes claimed, that means that it was headed for denial until the White House asked the Office of Pardon Attorney to “take a second look” at it.

Was it President Bush himself who asked for that second look when he saw a kindred soul in Vennes’ deep involvement with Teen Challenge? Or was someone else running interference for Vennes at the White House?

And if Vennes was going to be granted a pardon, how did he pass muster with the FBI only five months before they recorded Tom Petters implicating him in the Ponzi scheme? It’s hard to fathom that Vennes wasn’t on the FBI’s radar until those recordings were made.

One government official familiar with the pardon process concurred that the record doesn’t reflect well on the FBI.

“I think it’s quite strange that the FBI didn't give the Pardon Attorney a head’s up, at a time when the FBI had to know that Vennes was the target of an ongoing investigation,” the former official noted. “Instead, the Pardon Attorney had to learn about it from the press, like everyone else. I have no reason to think that it was anything other than the left hand not knowing what the right hand was doing, that the Pardon Attorney asked the background unit to address a narrow issue and the FBI didn't think to check any further.

“But even so, that's hardly an excuse. The FBI's failure to connect the dots nearly resulted in a pardon that would surely have been a great embarrassment to the President, which is one of the reasons that supposedly justifies the Justice Department's advisory function in the first place.”

OPA MEDDLING?

The pardon process of Frank Vennes Jr. points up other long-standing concerns about undue influence on the way the Office of Pardon Attorney operates.

After looking at the documents produced under FOIA, a former federal official familiar with the pardon process said that “it appears that someone with influence must have contacted the White House about the case between the time DOJ sent its denial report in April of 2006 and the time the White House told the Pardon Attorney to 'take another look' at the case (code for 'we want a different recommendation') in July of 2007. But that sort of lobbying happens all the time, and there really isn't anything wrong with it. In fact, I think the White House showed quite a lot of respect for the Justice Department's process by sending the case back for reconsideration.

“What is more interesting is what the documents reveal about the extensive and inefficient meddling with the Pardon Attorney by the Deputy Attorney General's office, which delayed the processing of Vennes' application for years and showed no respect for the official whose job it is to make recommendations to the president. The DAG sent the case back to OPA at least three times between 2002 and 2006, and finally had to direct the Pardon Attorney to change what had been a favorable recommendation to a denial. In 2008, after the White House indicated that it wanted to grant the pardon, the DAG again interfered, this time directing a new Pardon Attorney to make a favorable recommendation.

"Honestly, it is a real shame that the Pardon Attorney can't command more respect in his own agency -- which is precisely what has made the Justice Department so unhelpful to the President in clemency matters over the past 20 years.”

FOLLOW THE MONEY

The role of political money in Vennes’ pardon story also is troubling.

Over the course of a decade, from 1998 to 2008, Vennes, members of his family, his personal lawyer, Craig Howse, and his wife donated a total of $217,800 to Michele Bachmann, Tim Pawlenty, Norm Coleman, Amy Klobuchar, Ted Mondale, the Minnesota House Republican Campaign Committee and the Republican Party of Minnesota. During eight of those 10 years, Vennes was pursuing a presidential pardon through the same politicians and political entities who were benefiting from his largess.

“In part, the failure lies with the Justice Department for failing, as a matter of routine policy, to not look at this issue,” says one former federal official. “They deliberately don’t look at it because they don’t want to know.”

Checking Federal Election Commission records for donations made to politicians by pardon applicants for whom those politicians have written letters of recommendation should simply be a part of the pardon investigation process, the official suggests.

“How can you judge the credibility of one of these letters if they don’t know that important information?”

Some in the academic and legal community who follow presidential pardons closely fear that cases such as Vennes’ could taint the process so that less-politically-connected pardon candidates won’t get a fair shake. Or, that politicians will fear recommending a pardon for anyone, regardless of the merits of their case.

FROM PARDON TRAIL TO FRAUD TRIAL

Frank Elroy Vennes Jr., now of Cocoa Beach, FL, was indicted on April 20, 2011, on four counts of securities fraud and one count of money-laundering. He entered a not-guilty plea on May 3. Two other defendants charged with securities fraud along with Vennes—David William Harrold and Bruce Francis Prevost—already have pleaded guilty and reportedly are cooperating with federal authorities.

Once headed for a pardon by President Bush for his earlier crimes, Frank Vennes Jr. could be headed for prison again instead. It’s a strange twist of fate for a former North Dakota pawnbroker-turned-multimillionaire and felon who once counted among his friends two current candidates for the White House and some of Minnesota’s leading political figures.

Vennes’ fraud and money-laundering trial is scheduled to begin in U.S. District Court in Minneapolis February 6, 2012—right in the middle of presidential primary season. That might focus enough attention on Vennes’ pardon to get some politicians to explain their cozy relationship with him. It might also spur others to address the concerns expressed above about flaws in the pardon process itself.

Stay tuned--things could get very interesting before this is all over.

UPDATE: Vennes indicted July 19 on 24 counts of fraud, money laundering and making false statements.

Additional research and graphic artwork by Ken Avidor.

Read Part 1 of "Lawyers, Guns & Money" here.

Read Part 2 of "Lawyers, Guns & Money" here.