United States v. Frykholm, Linda

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.