United States v. Fry

• Decision Date: 01 July 2015
• Docket Number: No. 13–3502.,13–3502.
• Citation: 792 F.3d 884
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. James Nathan FRY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

792 F.3d 884

UNITED STATES of America, Plaintiff–Appellee

v.James Nathan FRY, Defendant–Appellant.

No. 13–3502.

United States Court of Appeals, Eighth Circuit.

Submitted: Oct. 9, 2014.

Filed: July 1, 2015.

Rehearing and Rehearing En Banc Denied Aug. 4, 2015.

James K. Jenkins, argued, Maloy Jenkins Parker, on the brief, Boulder, CO, for Defendant–Appellant.

Kimberly A. Svendsen, AUSA, argued, Minneapolis, MN, for Plaintiff–Appellee.

Before COLLOTON, BRIGHT, and SHEPHERD, Circuit Judges.

Opinion

COLLOTON, Circuit Judge.

A jury convicted James Fry of five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the Securities and Exchange Commission, in connection with a Ponzi scheme orchestrated by Thomas Petters. The district court¹ sentenced Fry to a total of 210 months' imprisonment. On appeal, Fry argues that we should presume that the district court sentenced him vindictively, in retaliation for his exercise of the right to a jury trial, because Fry's sentence was longer than sentences imposed on defendants who pleaded guilty in related cases. We see no cause to presume vindictiveness by the sentencing judge, and we reject Fry's other challenges to his convictions and sentence. We therefore affirm the judgment.

I.

Beginning in approximately 1999, Fry solicited funds from investors and directed them into promissory notes issued by Petters Company, Inc. Fry told investors that the notes would be used to finance purchases of consumer merchandise that would be resold to retailers at a profit. In fact, the Petters Company notes were part of a multi-billion dollar Ponzi scheme orchestrated by Thomas Petters, who was convicted and sentenced in a separate case. See United States v. Petters, 663 F.3d 375, 378–79 (8th Cir.2011). Almost all of the purported merchandise transactions were fictitious, documentation for the transactions was fabricated, and early investors were paid purported profits with money raised from the sale of notes to later investors.

Fry raised money from investors through hedge funds known as the Arrowhead Funds, where he recruited others to assist in perpetrating the fraud. Between 1999 and 2008, the Arrowhead Funds invested over $500 million in Petters Company notes. Beginning around 2001, Fry knowingly misrepresented to investors that the Arrowhead Funds received payment directly from retailers, in genuine transactions, when in fact payment was received only from the Petters Company. Fry also told investors and potential investors falsely that the Petters Company notes were paid on time after payments were substantially delayed beginning in Fall 2007. When the Petters Company notes were approaching default, Fry arranged for the payment due date to be extended, so that the notes would not technically be in default. Even then, Fry solicited tens of millions of dollars in additional investments. All told, Fry caused approximately $130 million in losses for at least forty-four victims, while he collected tens of millions of dollars in performance and management fees for himself and entities he controlled.

Fry also made false statements to the Securities and Exchange Commission during its investigation of the Arrowhead Funds. Fry falsely denied that he approved several pitch books regarding the Petters Company notes for distribution to investors, and falsely claimed that he instructed an employee not to distribute the books. Fry also lied about his knowledge that retailers were not making payments on the Petters Company notes.

A grand jury charged Fry with securities fraud, in violation of 15 U.S.C. §§ 77q(a) and 77x and 18 U.S.C. § 2, wire fraud, in violation of 18 U.S.C. §§ 1343 and 2, and making false statements to the Securities and Exchange Commission, in violation of 18 U.S.C. § 1001(a)(2). He proceeded to trial and was convicted on all twelve counts. The district court sentenced Fry to 210 months' imprisonment, and this appeal followed.

Several other participants in the Petters scheme pleaded guilty to various charges and were sentenced by the same judge. Fry's appeal is premised in large part on a comparison of his sentence with the punishment imposed on four of these other participants, so a brief summary of their cases is appropriate here.

Gregory Bell was convicted on one count of wire fraud. Bell managed several hedge funds that invested in Petters Company notes. In late 2007, Bell extended the due dates on the Petters Company notes and failed to advise investors that payment had not been received by the original due date. Bell also engineered so-called “round trips,” in which money was shuffled between his investment funds and a Petters Company bank account to create the appearance that the investment funds were receiving payment on the notes. The court found that Bell was responsible under the sentencing guidelines for a loss amount of more than $200 million. Bell pleaded guilty and cooperated with the government. The court sentenced him to seventy-two months' imprisonment, before Fry was sentenced.

Larry Reynolds was convicted on one count of conspiracy to commit money laundering after assisting Petters in “routing $12 billion in investor funds through Reynolds's company's California bank account.” United States v. Reynolds, 643 F.3d 1130, 1132 (8th Cir.2011). Reynolds pleaded guilty and cooperated with the government in the investigation. Id. at 1133–34. In sentencing Reynolds, the district court took into account that Reynolds had “provided the equivalent of substantial assistance” in the investigation and prosecution of other persons. Id. at 1135. The court imposed a sentence of 130 months' imprisonment, before Fry was sentenced.

David Harrold and Bruce Prevost were Fry's co-defendants. Harrold and Prevost founded investment funds that solicited money from investors for Petters Company notes, starting in 2002. They falsely represented to investors that payments on the notes were received directly from the retailers and that payments were timely after Fall 2007. Harrold and Prevost traded notes that were close to default against new notes with new payment dates, so they would not have to disclose a default to their investors. The district court found that Harrold was accountable for a loss amount of between $50 and $100 million; Fry says that Prevost caused a loss of $720 million, although that figure is not available in the record on appeal.

Harrold and Prevost both pleaded guilty to four counts of securities fraud and cooperated with the government. They were sentenced after Fry. The court sentenced Harrold to sixty months' imprisonment and gave Prevost a term of ninety months.

At the sentencing hearing for Fry, the government asserted that Fry's role in the Petters Company scheme was more substantial than the involvement of Harrold, Prevost, and Bell. According to the government, the structure that Fry developed to infuse investor funds into the Petters Company notes was later adopted by Prevost and Harrold. With Fry's knowledge, the prosecution explained, Bell, Prevost, and Harrold copied marketing materials containing misrepresentations about the Petters Company notes that Fry had developed. Fry then lied to the Securities and Exchange Commission and obstructed the investigation of the fraud scheme.

II.

Fry's only challenge to his convictions concerns two counts of making false statements to the Securities and Exchange Commission. He contends that two of the counts were multiplicitous (i.e., that they charged the same offense), and that the Double Jeopardy Clause forbids his conviction on both counts. Fry did not present this claim in a pretrial motion, as required by Federal Rule of Criminal Procedure 12(b)(3)(B)(ii). Under Rule 12(c)(3), as amended December 1, 2014, a court may consider an issue not timely raised under Rule 12(b)(3) only upon a showing of “good cause,” which requires a showing of cause and prejudice. See Davis v. United States, 411 U.S. 233, 242–43, 93 S.Ct. 1577, 36 L.Ed.2d 216 (1973).

Amended Rule 12 applies to pending appeals such as this one where it is “just and practicable.” Order Amending Federal Rules of Criminal Procedure, 2014 U.S. ORDER 0015 (U.S. Apr. 25, 2014) (Westlaw). Given that Fry failed to raise the issue as required by rule, and at most might have claimed entitlement to plain-error review under former circuit law, compare United States v. Robertson, 606 F.3d 943, 950 (8th Cir.2010), with United States v. Herzog, 644 F.2d 713, 716 (8th Cir.1981), we see no reason to forego application of the current version of Rule 12. See United States v. Anderson, 783 F.3d 727, 741 (8th Cir.2015). Commentary to amended Rule 12 makes clear that former Rule 12(e) was never designed to permit appellate review without a showing of good cause, see Fed.R.Crim.P. 12, advisory committee's note to 2014 amendment, and this court never granted discretionary relief under a plain-error standard based on former Rule 12.

Applying amended Rule 12(c)(3), Fry has not shown “good cause” for failing to raise a timely challenge to the multiplicity of the indictment. He claims that the two disputed counts “related to the creation and distribution of pitch books for investments in Arrowhead funds by one individual,” and that the identity between the counts was “not apparent from the face of the indictment.” The third superseding indictment, however, plainly revealed the essence of the two charges. The first count charged Fry with falsely stating that “he never approved the ... pitch books for distribution to investors,” while the second count alleged that “he informed [an employee] that the ... pitch books were inaccurate and he instructed her not to send them to investors.” R. Doc. 181, at 16–17. The indictment gave sufficient notice for Fry to advance the multiplicity argument that he raises belatedly on appeal, and we therefore decline to address it.

III.

In challenging his sentence, Fry's lead contention is that this court should presume that the...