Attorney-at-Law

AN UNERRING NOSE FOR FRAUD – PART DEUX

In Uncategorized on 07/20/2021 at 16:48

Frank Vennes had just gotten out of jail, where he’d been serving out a guns, drugs, and money laundering fall. He was running a modest coin business, when he met Mr. T. J. Petters, wealthy highroller. Mr. T. J. said he needed a $300K loan to finance some consumer electronics purchase that he said he would sell on to big boxers. All Frank could score was $100K, but Mr. T. J. took it, and paid Frank back the $100K with $100K vigorish in one month.

Pretty good, huh? Too good to be true. IRS thought so.

Frank claims that between 1995 and 2008, Mr. T. J. took him and his investors for $130 million. IRS nixes Frank’s theft loss when Mr. T. J. finally goes down.

Read all about it in Frank E. Vennes, Jr. and Kimberly Vennes, 2021 T.C. Memo. 93, filed 7/20/21.

Frank once tried to verify Mr. T. J.’s story about sales to Sam’s Club, but when Mr. T. J. told him to stop, he did. He hired an ex-CPA to do due diligence, but the sleuth had dealt with one fraud case in his career. Even Frank’s son told Frank that the due diligence was defective.

Judge Kerrigan: “We find that petitioner either knew or deliberately avoided knowing the fraudulent nature of the Petters Scheme because the evidence establishes that [Frank’s Sub S’] investments in [Petters’ outfit] were unrealistic and too good to be true. Petitioner had multiple opportunities to examine [Petters’ outfit]’s business. He was warned about problems with [Petters’ outfit] on at least three occasions by [son]… concerning overpayment for merchandise, minimal due diligence, and market reports which contradicted Petters’ excuses for late payment. The evidence shows that petitioner did nothing in response to concerns that were raised.

“From the start of petitioner’s business relationship with Petters, there were many indications that the arrangement was too good to be true. The relationship was unusual from its commencement in 1995. When petitioner met Petters, he was ‘trying to rebuild his life’ after being released from prison. He ran a business, which he described as a modest operation, that did not own considerable inventory and that dealt in rare coins and diamonds.

“At this time petitioners lived in a modest home, and petitioner was making efforts to satisfy a judgment imposed because of his past violations of Federal law. Petters, a successful businessman, reached out to petitioner and requested a $300,000 loan. This is unusual and presents the first cause for apprehension: the difference between petitioner’s and Petters’ financial and social status. Petitioner was able to come up with only $100,000 to lend Petters, also rendering dubious Petters’ decision to proceed with the transaction as it was a mere one-third of the amount requested. The initial transaction between Petters and petitioner resembles more of a trial run than a legitimate business transaction.” 2021 T. C. Memo. 93, at pp. 47-48.

Frank also helped Mr. T. J. craft excuses to investors why he was paying late at the same time the big boxers to whom Mr. T.  J. was allegedly selling were raking it in.

Frank can’t prove the value of the notes he got from Mr. T. J.’s outfit immediately before the time he claims they became worthless. He claimed face value, but when he tried selling them, no one would buy them.

But a couple limited partnerships (hi, Judge Holmes) where Frank claims he was a limited partner were innocent investors, and could take the benefits of Rev. Proc. 2009-20, 2009-14 I.R.B. 749. So Frank gets some theft loss passed through, via Judge Kerrigan’s drill-down into DE contract law.

Alas, this story has an even sadder ending than the loss of most of Frank’s Section 165 theft loss.

“…Petters and petitioner had a conversation in which they talked about the … note transactions being ‘terribly wrong’ and another in which petitioner expressed to Petters that he did not want to return to jail.” 2021 T. C. Memo. 93, at p. 8.

“In April 2011 petitioner was charged by indictment with securities fraud and money laundering…. Petitioner pleaded guilty to one count of aiding and abetting securities fraud in violation of 15 U.S.C. secs. 77q(a) and 77x (2006), and one count of engaging in a monetary transaction in property derived from a specified unlawful activity in violation of 18 U.S.C. sec. 1957.

“Petitioner entered into a plea agreement which did not charge him with underlying knowledge of the Ponzi scheme. Rather, he was charged with aiding and abetting misrepresentations and omissions to investors regarding [Petters’ outfit’s] note transactions. Petitioner was sentenced to 180 months in prison and is currently serving this sentence.” 2021 T. C. Memo. 93, at p. 19.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: