United States v. Frykholm, Linda ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-1202
United States of America,
Plaintiff-Appellee,
v.
Linda Frykholm,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 00 CR 50001--Philip G. Reinhard, Judge.
Argued May 16, 2001--Decided September 25, 2001
Before Harlington Wood, Jr., Coffey, and
Williams, Circuit Judges.
Coffey, Circuit Judge. On January 18,
2000, a grand jury indicted Linda
Frykholm for mail fraud, 18 U.S.C. sec.
1341, wire fraud, 18 U.S.C. sec. 1343,
and money laundering, 18 U.S.C. sec.
1957(a). The indictment alleged that
Frykholm conducted a scheme of fraud
under the name "J & L Investments" to
illegally deprive investors of more than
$10 million. The indictment further
alleged that certain properties,
including bank accounts, automobiles, and
property in the Lake Geneva, Illinois,
area were subject to forfeiture as
proceeds from Frykholm’s scheme. On
August 31, 2000, Frykholm pleaded guilty
to wire fraud and money laundering and
admitted to the forfeiture allegations,
but reserved the right to challenge
various applications of the sentencing
guidelines. The court sentenced Frykholm
to a total term of imprisonment of 144
months, to be followed by three years
supervised release, and restitution in
the amount of $10,740,791. Frykholm
appeals her sentence, and we affirm.
I. Factual Background
Between April 1998 and January 2000,
Frykholm operated a fraudulent "Ponzi"
scheme/1 initially under the name "J &
L Investments" in Rockford, Illinois.
Although the details of Frykholm’s
promises to her "investors" varied, her
misrepresentations contained a common
thread: unrealistic profits to the
investor in an extremely short period of
time. For example, she promised some
investors up to a 300% profit in as few
as seven to ten days. Another investor
was promised a 100% profit after only 72
hours of trading. Frykholm boasted the
enormous returns would be generated by
"off-shore" and "European" trading
programs or even participation in United
Nations’ humanitarian projects in
Honduras and Kosovo. Frykholm’s schemes
brought in almost $15 million from
approximately 226 direct investors
throughout the world in just under two
years. Frykholm used some of the
investment monies to pay purported
profits and return of capital to earlier
investors and converted the remainder to
her own use./2 By paying the purported
profits to the earlier investors,
Frykholm was successful in enticing those
investors to put in even more money and
in convincing them in turn to contact
other potential investors to solicit
additional investments./3 In addition,
Frykholm made efforts to keep her scheme
secret by discouraging investors from
reporting her fraudulent scheme. As part
of the fraudulent enterprise, for
example, she told investors that they had
earned profits from non-existent trading
programs and induced them to reinvest
their profits in order that she would not
have to account for the phantom profits.
She further required investors to agree
in writing not to discuss their
investments in her scheme with other
persons, including law enforcement.
Eventually Frykholm’s pyramid scheme
unraveled. In early 1999, investors began
pressing Frykholm for their promised
profits, and she initially stalled
repayment with a number of excuses,
suggesting to investors that their funds
had been inadvertently routed to the
wrong bank account, that wire transfers
had been frozen, or even that "Y2K"
computer problems/4 had caused the
early termination of existing trading
programs. Shortly thereafter investor
Michael Cooper reported Frykholm to the
Texas Securities Department after he
became suspicious of Frykholm’s numerous
excuses in response to his requests for
the return of his investment. The Texas
Securities Department thereafter referred
Cooper’s complaint to the Illinois
Securities Department because Frykholm
conducted the scheme within Illinois.
The Illinois Securities Department
("ISD") commenced an investigation into
Frykholm’s and J & L Investments’
activities. The ISD served Frykholm with
an administrative subpoena on February 5,
1999, commanding her to appear before the
ISD on February 10, 1999 and to produce
her J & L Investments records. At the
hearing, Frykholm asserted her Fifth
Amendment rights and refused to testify
or produce any documents. Two days after
the hearing, Frykholm opened a bank
account under the name of Thatcher &
Harrington, Ltd. in Wisconsin. Six days
later, the ISD entered a Temporary Order
of Prohibition against Frykholm and J & L
Investments, prohibiting her from selling
or offering securities in Illinois. After
receiving the order of prohibition,
Frykholm then opened bank accounts for
herself and J & L Investments in
Wisconsin.
As her Ponzi scheme continued to
unravel, Frykholm made efforts to prolong
it. On March 28, 1999, she decided to buy
off Michael Cooper, the investor who had
initially complained about her scheme. In
order to buy off Cooper, Frykholm
enlisted the aid of Max Akamai, who
Frykholm had previously asked to help her
in her business by meeting with
investors, delivering checks to
investors, and otherwise talking with
those investors who had demanded the
return of their investments. At
Frykholm’s direction, Akamai called
Cooper and posed as an attorney,
identifying himself only as "Robert."
Akamai met Cooper to provide him with a
cashier’s check in the amount of $32,500.
In hopes of further concealing her
fraudulent scheme, Frykholm designed a
written release, in which she threatened
Cooper with federal mail and wire charges
if legal action were brought on his
behalf against Frykholm. Frykholm
instructed Akamai to obtain Cooper’s
signature on the release before providing
him with the $32,500.
After the expiration of the previously
issued temporary order of prohibition,
the ISD entered an order on May 28, 1999,
barring Frykholm and J & L Investments
from further sales of securities within
Illinois, but despite the order she
continued her scheme. In November and
December 1999, Frykholm began a last-
ditch effort to buy her way out by paying
back investors their initial investment
and profits. She did so by sending out
bad checks drawn upon a new account she
established in the name of Newco Trust at
the National City Bank in Belvidere,
Illinois. When National City Bank became
aware of her fraudulent plan, it closed
her account. On January 7, 2000, Frykholm
engaged in one final scheme to extricate
herself from her legal and financial
problems. Frykholm purchased round trip
airline tickets to Zurich, Switzerland
for herself and Max Akamai using the
pseudonyms Melvin and Pamela Brown and
attempted to flee the United States. When
the airline would not let her use the
tickets because they were not in her
name, Frykholm purchased two additional
tickets using a credit card she had
established in her son’s name. As she
attempted to board the flight, FBI agents
took her into custody and placed her
under arrest.
Faced with a mountain of evidence
against her, on August 31, 2000, Frykholm
opted to plead guilty in the district
court for the northern district of
Illinois to one count of wire fraud, 18
U.S.C. sec. 1343 and one count of money
laundering, 18 U.S.C. sec. 1957(b)(1) &
(2) and admitted to the forfeiture
allegations. The court accepted
Frykholm’s plea and set a date for
sentencing. Before her sentencing
hearing, Frykholm met with Probation
Officer Teresa Brown, who completed the
Presentence Investigation Report
("PSIR"). At the outset of the meeting,
while Frykholm’s counsel had momentarily
left the room and before Brown had even
begun questioning Frykholm, Frykholm told
Brown that "[she did not] know what [she
was] doing here" and that she had "never
done anything wrong in [her] whole life."
Relying upon this statement, Brown
recommended that the district court
decline to award Frykholm a reduction in
offense level for acceptance of
responsibility, U.S.S.G. sec. 3E1.1.
On January 11 and 12, 2001, the
sentencing court held a hearing. At the
hearing Frykholm testified extensively in
hopes that the sentencing judge might
award her a downward adjustment for her
acceptance of responsibility. Throughout
the hearing Frykholm stubbornly denied
having made the statement to Probation
Officer Brown. Frykholm painted herself
as extremely remorseful, as "more than
sorry" and stated that she "pray[s] for
these people [whom she defrauded] daily."
The district court did not believe that
Frykholm was truly remorseful and
declined to give her a reduction for
acceptance of responsibility. The trial
judge credited Probation Officer Brown’s
testimony concerning the statement previ
ously referred to and found that Frykholm
had indeed made the alleged statement.
The court later commented on the
implications of Frykholm’s denial at the
sentencing hearing:
I had the opportunity to hear the
defendant testify, not only as to that
[statement], but her complete testimony,
and it is an inescapable conclusion that
she would dodge any question that might
implicate her any more. She was evasive
when she needed to be evasive. For a
person who is able to persuade so many
investors to give up so much money, she
has to be a pretty remarkable person in
terms of her communication skills. I
believe she made that statement to [the
probation officer], and I believe she
made it to somehow . . . convey, ’hey,
I’m just sort of a person who’s a pawn in
this whole thing and to try to in some
way attract some sympathy from the
probation officer.’
I fully expected that she might come in
and admit that she had made this
statement, but that she made it in an
emotional state, that she’s been troubled
over this, and she made it because . . .
this whole thing has been an ordeal for
her, and if such were the case, the court
could understand the circumstances . . .
. It’s my belief that she made the
statement, however brief, to attract some
sympathy . . . to lend some persuasion to
the probation officer that . . . she’s
not as bad a person as it seems.
And then to perpetuate it while she’s on
the witness stand by denying [she made
the statement], I can’t tolerate . . . .
Therefore, I am denying her acceptance of
responsibility for this offense.
The district court further found that
Frykholm had abused a position of trust,
U.S.S.G. sec. 3B1.3, and imposed a 2-
level increase in offense level.
Accordingly, the district court
calculated Frykholm’s adjusted offense
level at 29.
The sentencing court next proceeded to
calculate Frykholm’s criminal history
category. Based on information from the
Illinois Department of Corrections
("IDOC") and the National Crime
Information Center ("NCIC"), the
probation officer recommended that the
trial court add two points to her
criminal history score because Frykholm
was on parole when she conducted her
Ponzi scheme, U.S.S.G. sec. 4A1.1(d). The
probation officer noted that, according
to information from the IDOC and NCIC,
Frykholm was discharged from parole (for
a 1994 Lake County, Illinois, deceptive
practices, theft, and forgery conviction)
on November 7, 1998, and therefore
concluded that Frykholm was on parole
when she commenced her Ponzi scheme in
April 1998.
In response, Frykholm argued at the
sentencing hearing that she had been
released from parole in 1997, almost a
year before she launched her Ponzi
scheme. According to Frykholm, she was
told in 1997 that she no longer had to
report to her probation officer. Frykholm
also submitted a rule to show cause
petition requesting that she show why she
should not be held in contempt for her
failure to pay restitution as described
in her 1994 conviction. The Lake County,
Illinois assistant state’s attorney who
prepared the petition had written that
Frykholm’s parole was scheduled to end on
June 23, 1997 (though he never explained
the source of his information). The court
chose to credit the information from the
IDOC and NCIC, rather than the
unsupported statement in the rule to show
cause petition. With the two points the
court imposed under sec. 4A1.1(d), the
court calculated Frykholm’s criminal
history category as IV, which together
with her adjusted offense level of 29,
yielded a guideline-imposed sentencing
range of 121 to 151 months. The district
court sentenced Frykholm to a term of
imprisonment of 144 months. Frykholm
appeals her sentence.
II. Issues
On appeal, Frykholm raises three issues.
Frykholm contends that the district court
erred when it denied her a downward
adjustment in offense level for
acceptance of responsibility. Secondly,
Frykholm contends that the district court
erred in imposing a sentencing
enhancement because she abused a position
of trust. Finally, Frykholm argues that
the district court erred when it
determined that she was on parole when
she committed part of her scheme to
defraud.
III. Discussion
1. Acceptance of Responsibility
Frykholm contends that she was entitled
to a three-level reduction in offense
level for acceptance of responsibility,
U.S.S.G. sec. 3E1.1 because she pleaded
guilty, admitted her remorse during
sentencing, and met with the government
and Illinois Department of Securities
investigators to help them trace the
transactions and recover as much of the
fraudulently obtained funds as remained.
Section 3E1.1 provides for a decrease in
offense level by 2 levels if the
sentencing judge, in an exercise of
discretion, determines that the defendant
has clearly demonstrated acceptance
ofresponsibility for her offense. In
order to qualify for a downward departure
for acceptance of responsibility, a
defendant must: "1) demonstrate that
[she] clearly recognizes and
affirmatively accepts responsibility for
[her] conduct; 2) timely notify
authorities of [her] intention to enter a
plea of guilty; and 3) truthfully admit
the conduct comprising the offense of
conviction and admit, or not falsely deny
or frivolously contest, the relevant
conduct as it relates to the offense of
conviction." United States v. Mancillas,
183 F.3d 682, 711 (7th Cir. 1999).
"Whether a defendant has fully accepted
responsibility for her offense is a
finding of fact to be made by the trial
court, and is based largely on the
sentencing judge’s determinations
regarding the defendant’s credibility and
conduct bearing upon the question of
whether the defendant has in fact
accepted responsibility." United States
v. Schaefer, 107 F.3d 1280, 1289 (7th
Cir. 1997). The sentencing judge is in a
"unique position to evaluate a
defendant’s acceptance of responsibility
. . . [and] because the trial court’s
assessment of a defendant’s contrition
will depend heavily on credibility
assessments, the ’clearly erroneous’
standard will nearly always sustain the
judgment of the district court in this
area." United States v. Taylor, 72 F.3d
533, 549 (7th Cir. 1995).
Frykholm argues that the sentencing
court erred in denying her an adjustment
in offense level for acceptance of
responsibility solely on the basis of her
statement to the effect that "I have
never done anything wrong." The gist of
Frykholm’s argument is that all of her
other alleged acts of contrition (her
timely guilty plea, cooperation with the
government in tracing the funds she
fraudulently obtained, and expression of
sorrow and remorse at the sentencing
hearing) more than outweigh any isolated
statement where she denied any
wrongdoing. Frykholm asserts that the
statement could have simply been an
expression of remorse, suggesting that
she might have been meaning to express
confusion as to how she had reached such
a low point in her life. We disagree.
The district court did not deny her
responsibility based solely upon the fact
that she told the probation officer that
she had never done anything wrong. The
district court instead declined to give
Frykholm the bargain-rate sentencing
discount because she falsely denied
during her sentencing hearing having made
that statement to the probation officer.
Contrary to Frykholm’s argument, the
district court expressly considered the
possibility that Frykholm’s statement
might have been merely the product of
stress and a poorly worded expression of
confusion or remorse, stating that he
"fully expected that [Frykholm] might
come in and admit that she made this
statement but that she made it in an
emotional state . . . because . . . this
whole thing has been an ordeal for her."
The court went on to note that if such
were the case, he was prepared to give
Frykholm the sentencing reduction for
acceptance of responsibility. When she
denied having made the statement (rather
than explain why she made it), the judge
properly found that Frykholm had made the
statement in an attempt to manipulate the
probation officer and evoke sympathy and
next declined to give Frykholm an
adjustment for acceptance of responsibil
ity because she had compounded her error
by lying about that statement while
testifying during her sentencing hearing.
"The determination of whether a
defendant warrants the reduction is
context-specific." United States v.
Branch, 195 F.3d 928, 937 (7th Cir.
1999). Unlike the district court, "we do
not enjoy a ’front row seat’ from which
to assess [Frykholm’s] statements and
demeanor," and thus we are "ill-equipped
to assess whether a particular defendant
is motivated by genuine acceptance of
responsibility or by a self-serving
desire to minimize [her] own punishment."
Taylor, 72 F.3d at 552. In this case,
where Frykholm was given an opportunity
to explain a statement that seemed
utterly inconsistent with acceptance of
responsibility given its plain meaning,
Frykholm not only chose not to explain
the statement, but rather went beyond it
and boldly attempted to offer an
exculpatory denial. Cf. United States v.
Corbin, 998 F.2d 1377, 1393 (7th Cir.
1993) (defendant who tried to deflect
responsibility with exculpatory, but
untrue, statements did not warrant
acceptance of responsibility adjustment).
The sentencing judge properly chose not
to give any credence to her denial and
instead determined that Frykholm had in
fact advised the probation officer that
she had never done anything wrong in an
effort to evoke sympathy and to downplay
her criminal conduct. Our review of the
sentencing hearing reveals that the judge
carefully considered and fully explained
his reasoning in his decision to deny
Frykholm an adjustment for acceptance of
responsibility. We will not second-guess
the sentencing judge’s assessment of
Frykholm’s motivation because he "had the
best opportunity to observe [Frykholm’s]
facial expressions, attitudes, tone of
voice, eye contract, posture and body
movements . . . ." Mancillas, 183 F.3d at
710 (citation omitted). Accordingly, we
hold that the district court did not
clearly err in declining to give Frykholm
credit for accepting responsibility.
2. Abuse of Trust
Frykholm next argues that the trial
court erred in imposing a two-level
enhancement for abuse of a position of
trust, U.S.S.G. sec. 3B1.3. In order for
the increase to be appropriate, the
government must demonstrate that "(1) the
defendant occupied a position of trust;
and (2) the defendant’s abuse of the
position of trust significantly
facilitated the commission of the
offense." United States v. Davuluri, 239
F.3d 902, 908 (7th Cir. 2001). Frykholm
claims that her activities did not place
her in a position of trust as that phrase
is used in the Guidelines and thus the
first prong of the enhancement test is
not satisfied. We review de novo the
district court’s interpretation of what
constitutes a "position of trust." Id.
Frykholm claims that she did not occupy
a position of trust because she did not
hold a license to engage in commodities
trading and because she kept the
transactions at arms length and did not
have a close personal relationship with
any of her "investors." She maintains
that had only a standard commercial
relationship, looking to United States v.
Brown, 47 F.3d 198 (7th Cir. 1995) for
support. Frykholm argues that conducting
a Ponzi scheme does not create a position
of trust because her relationships (or
lack thereof) with the "investors"
provided her with the same opportunity
that anyone else would have had.
Frykholm’s argument falls far short of
being convincing. We note initially that
whether Frykholm was a licensed broker or
not accomplishes nothing to answer the
question as to whether she was in a
position of trust. United States v.
Strang, 80 F.3d 1214, 1219 (7th Cir.
1996). Instead, the "sentencing court
must look beyond formal labels to the
relationship between the victim and the
defendant and the responsibility
entrusted by the victim to the
defendant." Davuluri, 239 F.3d at 908. In
other words, whether Frykholm occupied a
position of trust turns upon whether she
had "access or authority over [other
persons’] valuable things." Strang, 80
F.3d at 1220; Brown, 47 F.3d at 205.
While it may be true, as Frykholm
contends, that she did not befriend her
investors, it cannot be said that
Frykholm did not hold herself out as
experienced in investing. Frykholm told
Rosalie Tabin that she had been investing
(and making money at it) for five years
and that her father had been investing
for thirty years. She promised investors
wonderful and incredible returns on their
investments to be generated by "European
trading programs" or humanitarian
investment projects run by the United
Nations. She signed letters and contracts
in which she "personally guaranteed" the
funds "entrusted" to her would be used in
"private investment[s]" or invitation
only trading programs. In short, Frykholm
acted as if she had experience in trading
securities, that she would operate as a
fiduciary for her investors, and that she
would give them access to investment
opportunities that they otherwise would
not have had. Frykholm was given complete
discretion in using the money given to
her by her victims on the assumption that
she would invest it in their best
interests and as such occupied a position
of trust. Davuluri, 239 F.3d at 909
(financial advisor with total control
over investors’ funds occupied position
of trust despite lack of formal position
of trust). Given Frykholm’s complete
discretion over her investor’s funds and
promises that she would invest for them,
we hold that the district court did not
err in concluding that Frykholm abused a
position of trust.
3. Criminal History Category
Finally Frykholm argues that the
district court erred in finding that she
was on parole when she committed her
offense and as a result erroneously added
two points when calculating her criminal
history category, U.S.S.G. sec. 4A1.1(d).
We review the district court’s factual
finding that Frykholm was on parole when
she committed her offense under the
clearly erroneous standard. United States
v. Newman, 148 F.3d 871, 876 (7th Cir.
1998); United States v. Edwards, 115 F.3d
1322, 1330 (7th Cir. 1997).
Frykholm argues that her parole ended in
June 1997, almost a year before she
commenced her Ponzi scheme. To support
her argument Frykholm relies on the rule
to show cause petition from a Lake
County, Illinois assistant state’s
attorney stating her discharge date as
June 23, 1997. Frykholm also points to a
telephone conversation, which occurred
around June 1997, with a parole officer
in Rockford, Illinois, instructing her
that she no longer had to report for
parole. Frykholm argues that the district
court erred when it ignored the evidence
she submitted and instead credited the
evidence in the PSIR from the IDOC and
NCIC stating that Frykholm’s parole from
her 1994 conviction terminated on
November 7, 1998. Frykholm suggests that
both sources of evidence were "equally
reliable" and therefore the district
court erred in selecting the November 7,
1998 date as her discharge from parole.
Frykholm’s argument is without merit.
"’Where there are two permissive views of
the evidence, the fact finder’s choice
between them cannot be clearly erroneous.’"
United States v. Stokes, 211 F.3d 1039,
1044 (7th Cir. 1999) (quoting United
States v. Swanquist, 161 F.3d 1064, 1077
(7th Cir. 1998)). Moreover, we do not
share Frykholm’s assessment that her
evidence was "equally reliable" with the
information contained in the PSIR.
Frykholm relied on a rule to show cause
petition that was not concerned with the
actual date Frykholm would be discharged
from parole, but only that Frykholm was
then on parole status. As the district
court correctly noted, nowhere in the
document did the petition explain the
source of the Lake County state’s
attorney’s information that Frykholm’s
parole was scheduled to end on June 23,
1997. The information contained in the
PSIR, on the other hand, was provided by
the IDOC (the institution that discharged
Frykholm from her parole) and was
verified by the NCIC. We hold that the
sentencing judge’s decision to credit the
information from the IDOC and NCIC
contained within the PSIR rather than the
unsupported, informational statement in
an assistant state’s attorney’s rule to
show cause petition was not clearly
erroneous.
IV. Conclusion
We hold that Frykholm’s arguments are
without merit and further that the
district court did not err in declining
to award Frykholm a reduction in offense
level for acceptance of responsibility or
in imposing an upward adjustment in
offense level for an abuse of a position
of trust. We also hold that the district
court did not err in calculating
Frykholm’s criminal history score when it
added two points to her score because she
was under a criminal justice sentence
when she commenced her Ponzi scheme.
Frykholm’s sentence is AFFIRMED.
FOOTNOTES
/1 A Ponzi scheme involves individuals, like Fryk-
holm, who convince investors to purchase inter-
ests in phony or unprofitable investment schemes,
paying off old investors with the money obtained
from new investors. See United States v. Brown,
47 F.3d 198, 201 n.1 (7th Cir. 1995).
/2 Of the $14,928,905 Frykholm obtained from her
investors, she returned $4,575,570 as return on
investments as well as profits. With the money
she retained for herself, Frykholm, for example,
paid for her children’s tuition to private
schools, gave money to relatives, purchased two
lake-front residences on Lake Geneva, purchased
cars and a boat, and funneled money into bank
accounts in her name throughout the world.
/3 Rosalie Tabin, Robert Walker, Digby Jarman,
Russell Pierce, and Malcolm Fox all solicited
other investors for Frykholm.
/4 Before the year 2000 there was much speculation
and fear that computer systems around the world
would develop errors or glitches in programs as
the calendar changed from 1999 to 2000.