By Reenat Sinay

Law360 (June 10, 2020, 3:57 PM EDT) -- A co-conspirator in Thomas Petters' $3.7 billion Ponzi scheme must remain in prison despite coronavirus fears after a Minnesota federal judge ruled Tuesday that his health is stable and that he still "poses a risk to the community."

Frank Elroy Vennes Jr. had argued that his psoriasis, rheumatoid arthritis, obesity, pacemaker, the removal of part of his left lung, history of hypertension and other conditions put him in danger of contracting COVID-19. The virus has so far killed one inmate and infected 51 others at FTC Oklahoma City, where he is being held, court and Bureau of Prisons records show.

But U.S. District Judge Paul A. Magnuson found that Vennes, who is serving the maximum 15-year sentence for money laundering and securities fraud, is too healthy to warrant compassionate release and that there is a risk he could repeat his offenses if released to home confinement.

"The presence of COVID-19 in the facility does not alone justify release to home confinement," Judge Magnuson said. "To warrant such relief, Vennes must show more than a mere speculation of the possibility of contracting the virus."

The judge also noted that when Vennes was recently taken to Minnesota to make an unrelated court appearance, he stated that none of his health conditions would compromise his transport, and in April a prison doctor deemed his conditions "stable."

"Therefore, his current contention that his ill health warrants immediate release is tenuous at best," Judge Magnuson said. "Vennes has not established that he is not receiving necessary medical care or that he is unable to care for himself in prison."

The judge previously denied Vennes' early release request in April because he had not yet exhausted administrative remedies within the BOP, which later rejected his application in May, court records show.

Vennes is currently set to be released on Dec. 28, 2026, according to court documents.

Described by prosecutors as Petters' "largest, longest, and loyalest financier," Vennes was sentenced in 2013 by U.S. District Judge Richard H. Kyle for luring investors into Petters' multibillion-dollar Ponzi scheme, in which investors were falsely told their funds would be used to purchase electronics for resale to big-box retailers at a profit.

Prosecutors said that Vennes, who was indicted in 2011, brought in more than $1 billion in investment funds from 1995 until the scheme unraveled in 2008. He allegedly used his company, Metro Gem, to solicit funds and also helped form the Arrowhead Funds hedge funds to raise money in a note offering for Petters' venture capital firm, Petters Co. Inc., or PCI. Vennes collected more than $100 million in commissions for his work, the government said.

Vennes allegedly knew that people involved in the Arrowhead Funds had misrepresented the PCI notes to investors and abetted the scam, according to the government. In February 2013, he admitted to using third parties to raise investment funds for the PCI notes because his previous convictions on federal narcotics, firearms and money laundering charges made it difficult for him to do so himself, according to prosecutors.

In denying Vennes' release request on Tuesday, Judge Magnuson pointed to Judge Kyle's characterization of Vennes as a repeat offender who has not learned from past mistakes.

"Vennes was previously convicted for fraud and yet went on to play a significant role in the large-scale Petters fraud, for which he is now imprisoned; he thus poses a risk to the community," said Judge Magnuson. "Indeed, Judge Kyle stated that he would have sentenced Vennes to a longer term of imprisonment were he not bound by the statutory maximum sentence."

In 2016, the U.S. Supreme Court refused to review Vennes' sentence.

Petters has been serving a 50-year prison term for orchestrating one of the largest Ponzi schemes in U.S. history. Other co-conspirators were also sentenced to jail time, including James Nathan Fry, who was found guilty by a jury of wire fraud and securities fraud, among other charges, and sentenced in 2013 to 17½ years in prison.

David Harrold and Bruce Prévost, who allegedly funneled a combined $1 billion in clients' money from a group of Palm Beach funds to Petters and raked in $58 million in management fees, were sentenced to five and seven-and-a-half years, respectively, back in 2013.

Representatives for both parties did not immediately respond Wednesday to requests for comment.

Vennes is represented by federal defenders Robert Meyers and Andrew H. Mohring.

The government is represented by Timothy C. Rank, Kimberly A. Svendsen and Robert M. Lewis of the U.S. Attorney's Office for the District of Minnesota.

The case is U.S. v. Vennes et al., case number 0:11-cr-00141, in the U.S. District Court for the District of Minnesota.

--Editing by Adam LoBelia.

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