U.S.A. v. Frykholm, 01-1202

• Decision Date: 25 September 2001
• Docket Number: No. 01-1202,01-1202
• Parties: (7th Cir. 2001) United States of America, Plaintiff-Appellee, v. Linda Frykholm, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 604

267 F.3d 604 (7th Cir. 2001)

United States of America, Plaintiff-Appellee, v. Linda Frykholm, Defendant-Appellant.

No. 01-1202

In the United States Court of Appeals For the Seventh Circuit

Argued May 16, 2001

Decided September 25, 2001

Appeal from the United States District Court for the Northern District of Illinois, Western Division. No. 00 CR 50001--Philip G. Reinhard, Judge. [Copyrighted Material Omitted] 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" scheme¹ 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 previously 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 . . . ....