Submitted October 9, 2014.
Appeal from United States District Court for the District of Minnesota - St. Paul.
For United States of America, Plaintiff - Appellee: Robert Mathias Lewis, Assistant U.S. Attorney, U.S. ATTORNEY'S OFFICE, Saint Paul, MN; Timothy Christopher Rank, Assistant U.S. Attorney, Kimberly A. Svendsen, Assistant U.S. Attorney, U.S. ATTORNEY'S OFFICE, District of Minnesota, Minneapolis, MN.
James Nathan Fry, Defendant - Appellant, Pro se, Littleton, CO.
For James Nathan Fry, Defendant - Appellant: James K. Jenkins, MALOY & JENKINS, Boulder, CO.
Before COLLOTON, BRIGHT, and SHEPHERD, Circuit Judges. BRIGHT, Circuit Judge, dissenting.
COLLOTON, Circuit Judge.
A jury convicted James Fry of five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the Securities and Exchange Commission, in connection with a Ponzi scheme orchestrated by Thomas Petters. The district court sentenced Fry to a total of 210 months' imprisonment. On appeal, Fry argues that we should presume that the district court sentenced him vindictively, in retaliation for his exercise of the right to a jury trial, because Fry's sentence was longer than sentences imposed on defendants who pleaded guilty in related cases. We see no cause to presume vindictiveness by the sentencing judge, and we reject Fry's other challenges to his convictions and sentence. We therefore affirm the judgment.
Beginning in approximately 1999, Fry solicited funds from investors and directed them into promissory notes issued by Petters Company, Inc. Fry told investors that the notes would be used to finance purchases of consumer merchandise that would be resold to retailers at a profit. In fact, the Petters Company notes were part of a multi-billion dollar Ponzi scheme orchestrated by Thomas Petters, who was convicted and sentenced in a separate case. See United States v. Petters, 663 F.3d 375, 378-79 (8th Cir. 2011). Almost all of the purported merchandise transactions were fictitious, documentation for the transactions was fabricated, and early investors were paid purported profits with money raised from the sale of notes to later investors.
Fry raised money from investors through hedge funds known as the Arrowhead Funds, where he recruited others to assist in perpetrating the fraud. Between 1999 and 2008, the Arrowhead Funds invested over $500 million in Petters Company notes. Beginning around 2001, Fry knowingly misrepresented to investors that the Arrowhead Funds received payment directly from retailers, in genuine transactions, when in fact payment was received only from the Petters Company. Fry also told investors and potential investors falsely that the Petters Company notes were paid on time after payments were substantially delayed beginning in Fall 2007. When the Petters Company notes were approaching default, Fry arranged for the payment due date to be extended, so that the notes would not technically be in default. Even then, Fry solicited tens of millions of dollars in additional investments. All told, Fry caused approximately $130 million in losses for at least forty-four victims, while he collected tens of millions of dollars in performance and management fees for himself and entities he controlled.
Fry also made false statements to the Securities and Exchange Commission during its investigation of the Arrowhead Funds. Fry falsely denied that he approved several pitch books regarding the Petters Company notes for distribution to investors, and falsely claimed that he instructed an employee not to distribute the books. Fry also lied about his knowledge that retailers were not making payments on the Petters Company notes.
A grand jury charged Fry with securities fraud, in violation of 15 U.S.C. § § 77q(a) and 77x and 18 U.S.C. § 2, wire fraud, in violation of 18 U.S.C. § § 1343 and 2, and making false statements to the Securities and Exchange Commission, in violation of 18 U.S.C. § 1001(a)(2). He proceeded to trial and was convicted on all twelve counts. The district court sentenced Fry to 210 months' imprisonment, and this appeal followed.
Several other participants in the Petters scheme pleaded guilty to various charges and were sentenced by the same judge. Fry's appeal is premised in large part on a comparison of his sentence with the punishment imposed on four of these other participants, so a brief summary of their cases is appropriate here.
Gregory Bell was convicted on one count of wire fraud. Bell managed several hedge funds that invested in Petters Company notes. In late 2007, Bell extended the due dates on the Petters Company notes and failed to advise investors that payment had not been received by the original due date. Bell also engineered so-called " round trips," in which money was shuffled between his investment funds and a Petters Company bank account to create the appearance that the investment funds were receiving payment on the notes. The court found that Bell was responsible under the sentencing guidelines for a loss amount of more than $200 million. Bell pleaded guilty and cooperated with the government. The court sentenced him to seventy-two months' imprisonment, before Fry was sentenced.
Larry Reynolds was convicted on one count of conspiracy to commit money laundering after assisting Petters in " routing $12 billion in investor funds through Reynolds's company's California bank account." United States v. Reynolds, 643 F.3d 1130, 1132 (8th Cir. 2011). Reynolds pleaded guilty and cooperated with the government in the investigation. Id. at 1133-34. In sentencing Reynolds, the district court took into account that Reynolds had " provided the equivalent of substantial assistance" in the investigation and prosecution of other persons. Id. at 1135. The court imposed a sentence of 130 months' imprisonment, before Fry was sentenced.
David Harrold and Bruce Prevost were Fry's co-defendants. Harrold and Prevost founded investment funds that solicited money from investors for Petters Company notes, starting in 2002. They falsely represented to investors that payments on the notes were received directly from the retailers and that payments were timely after Fall 2007. Harrold and Prevost traded notes that were close to default against new notes with new payment dates, so they would not have to disclose a default to their investors. The district court found that Harrold was accountable for a loss amount of between $50 and $100 million; Fry says that Prevost caused a loss of $720 million, although that figure is not available in the record on appeal.
Harrold and Prevost both pleaded guilty to four counts of securities fraud and cooperated with the government. They were sentenced after Fry. The court sentenced Harrold to sixty months' ...