minneapolis fed kashkari ponzi scheme

He has yet to be sentenced.

Fry’s defense all along has been that Vennes directed all investments between Fry’s Arrowhead Capital Management funds and Petters.

“He was the intermediary between the Petters fraud and Mr. Fry,” Fry’s attorneys wrote in a brief after the Vennes guilty plea. “He insulated Petters from anyone who might get close enough to him to discover what was going on.”

Vennes almost certainly will be a witness during the upcoming trial before U.S. District Judge Richard Kyle, which is expected to last two to three weeks.

Former Arrowhead executive Michelle Palm is also expected to be a government witness in the case.


The government also alleges that Fry lied to the SEC after the scheme collapsed.

Fry’s legal team includes Robert Richman and prominent Minneapolis criminal defense attorney Joe Friedberg.

In an interview last week, Friedberg said Vennes’ criminal background was immaterial because Vennes was only the middleman between the hedge fund and Petters. Friedberg also said Fry believed that the alleged payments from big-box retailers went to PCI 24 hours before being paid to Arrowhead, and that only 12 notes were ever past due and that all were current at the time that the Petters empire imploded.

“Mr.
Fry was not only a victim of Mr. Petters. He was a victim of Mr.

Minneapolis fed kashkari ponzi scheme

By Pam Martens and Russ Martens: January 22, 2020 ~

Scott Minerd

On Monday, a member of the New York Fed’s own Investor Advisory Committee on Financial Markets, Scott Minerd, published a critique which he headlined as follows: “Global Central Banks Fueling a Ponzi Market,” with this scary subhead: “Ultimately, investors will awaken to the rising tide of defaults and downgrades.”

The thrust of the article is that central banks (which include the New York Fed’s Wall Street money spigot that was launched on September 17, 2019) are creating a Ponzi scheme of liquidity that is hiding the true state of risk in both the stock and bond markets.

Minneapolis fed kashkari ponzi schemer

Tom Petters-directed Ponzi scheme that bilked investors of $3.65 billion.

Fry, 59, steadfastly denies the charges while others around him have pleaded guilty for their role in providing investor money to Petters for the purported purchase of discounted consumer electronic goods and sale to big-box retailers in transactions that never happened.

The money from new investors, including several other hedge funds, was used to pay off loans to a Petters company from earlier investors.

But the Fry case is complicated by the presence of Frank Vennes Jr., the ex-convict born-again Christian who enlisted Fry’s assistance to raise money for Petters beginning in 1998.

Vennes was set to go to trial with Fry last February when he abruptly decided to plead guilty to counts of aiding and abetting securities fraud and unlawful money activity.

Minneapolis fed kashkari ponzi schemes

The implication is that without the Fed’s cheap money flooding markets, interest rates on questionable debt would be much higher, thus providing a red flag for investors.

Minerd develops his thesis as follows:

“The disturbing trend is that despite the rally in risk assets in the prior year, the number of defaults rose by approximately 50 percent, according to data compiled by J.P. Morgan. Additionally, the number of distressed exchanges increased by 400 percent.

“This correlates well with our observation that the number of idiosyncratic defaults has been increasing.
Ultimately, markets will need to reprice for this rising risk with increased bond spreads relative to Treasury securities.

Minneapolis fed kashkari ponzi schemers

There’s no barrier to you creating your own Bitcoin [and] there are thousands of garbage coins that are being created.

Kashkari noted that several of the cryptoassets on the market are “complete fraud and Ponzi schemes” and are profiting off the get-rich-quick mindset of the industry.

The Minneapolis Federal Reserve head admitted he had tried to understand the problems that Bitcoin would be able to solve, but ultimately concluded “no one can articulate what the actual problem is.”

He highlighted investor concerns over dollar inflation as a possible avenue for Bitcoin, but countered that BTC has thus far only proved effective at funding illicit activities such as drug dealing and prostitution.

Kashkari has previously been critical of cryptoassets, calling the industry a “giant garbage dumpster” in February 2020.

“I’ve not seen any use case other than funding illicit activities like drugs and prostitution,” the central banker said.

The Federal Reserve official who famously reassured the U.S. public last year that the central bank could inject unlimited money into the economy has voiced some well-worn, oft-rebutted criticisms of bitcoin and cryptocurrency in general.

“I was more optimistic about crypto and bitcoin five or six years ago,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Tuesday. “So far what I’ve seen is … 95% fraud, hype, noise and confusion.”

During an appearance at the Pacific NorthWest Economic Region annual summit in Big Sky, Mont., Kashkari contrasted the open nature of the crypto field with the U.S.

The spike to a 10 percent interest rate on a collateralized loan seemed to be signaling that there was a growing worry about one or more of these players defaulting and lenders were backing away from making the loans. That’s exactly how free markets are supposed to function.
They are supposed to accurately price risk. But the New York Fed killed that pricing mechanism by jumping into the market. It is currently offering this repo money at a fictitiously priced 1.55 percent.

And the money is not being loaned by the New York Fed to commercial banks, which could elect to pass on the cheap money by making consumer or business loans to goose the economy.

There is no barrier to you creating your own bitcoin, or me creating my own … I’ll call it Neelcoin,” he said. Pointing to his on-stage interlocutor, Larry Simkins, CEO of conglomerate The Washington Companies, Kashkari added, “and then Larry can create Larrycoin.”

Other Fed officials have expressed more nuanced and favorable assessments of digital assets.
Vice chairman Randal Quarles, for example, said in June that the U.S. should find ways to “say yes” to stablecoins.

While it is true that anyone can spin up a digital asset easily, Kashkari did not mention the power of network effects, which make bitcoin more secure and valuable in the market’s eyes than its many competitors.

“There are thousands of these garbage coins that have been created,” the central banker went on. “Some of them are complete fraud Ponzi schemes.

Inc.] operated.”

The brief continued, “Fry’s lies prevented investors from accurately assessing the safety and soundness of their investment and contributed to Petters’ Ponzi scheme becoming a multibillion dollar fraud.”

Prosecutors allege that Fry never informed his investors about Vennes’ criminal background out of concern that it would scare them off. The government also contends that Fry told investors that payments on their investments were coming directly from big-box retailers when they came directly from PCI.

And, third, the charges against Fry say he failed to tell investors when payments on their promissory notes were late.

And let’s not forget downgrade risk of BBBs: today 50 percent of the investment-grade [corporate debt] market is rated BBB, and in 2007 it was 35 percent. More specifically, about 8 percent of the investment-grade market was BBB- in 2007 and today it is 15 percent.

It has more than quintupled in size outstanding, from $800 billion to $3.3 trillion. We expect 15–20 percent of BBBs to get downgraded to high yield [junk bond] in the next downgrade wave: This would equate to $500–660 billion and be the largest fallen angel volume on record—and would also swamp the high yield market.”

Repricing risk is exactly what the free market attempted to do on September 17, 2019 when the overnight borrowing rate in the repo market went from its typical 2 percent to 10 percent.

Typically, banks, hedge funds and money market funds are the counterparties on these repo loans.

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