United States v. Nicholas Krug , 822 F.3d 994 ( 2016 )

United States Court of Appeals
For the Eighth Circuit
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No. 15-1350
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United States of America
lllllllllllllllllllll Plaintiff - Appellee
v.
Nicholas Krug
lllllllllllllllllllll Defendant - Appellant
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Appeal from United States District Court
for the Western District of Arkansas - Harrison
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Submitted: January 11, 2016
Filed: May 4, 2016
[Published]
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Before LOKEN, GRUENDER, and KELLY, Circuit Judges.
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PER CURIAM.
Nicholas Krug and a co-defendant, Charles Edward Elliot, together operated
a Ponzi scheme. After a jury trial, Krug was convicted of conspiracy to commit wire
fraud, in violation of 18 U.S.C. §§ 1343 and 1349. The district court1 sentenced him
to 42 months’ imprisonment and 3 years of supervised release. Krug appeals,
alleging that there was insufficient evidence for the jury to conclude that he
intentionally participated in a conspiracy to commit wire fraud, and that the district
court erroneously denied his motion to proceed pro se and represent himself at trial.
I. Background
Krug was an officer of Sovereign International LLC, a Nevada corporation that
Krug and Elliot used to effectuate a Ponzi scheme from March 2007 until August
2012. One of the victims of the scheme was Ruthann Currence, a resident of
Monterey, California. Unsatisfied with her efforts to protect her and her husband’s
assets, she received advice from a friend, Charles Moreno, to establish a limited
partnership with Elliot and Krug in Mountain Home, Arkansas. Currence contacted
Elliot by phone, and he apparently earned her trust over the course of several calls.
During their conversations, Elliot represented to Currence that he facilitated
investments through his business, Sovereign International, and had 11 years’
experience with his company. He eventually offered Currence the opportunity to
become an investor, telling Currence that her money would be protected by a U.S.
government bond. He stated that if Currence were to invest $500,000, she would
receive dividends of $50,000 per month for one year. At the end of the 1-year term,
Currence would have the option to either receive her $500,000 principal investment
back, or reinvest it for another 1-year term. In any case, Elliot required a minimum
investment amount of $300,000 to participate.
1
The Honorable Timothy L. Brooks, United States District Judge for the
Western District of Arkansas.
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Relying on the promises and representations Elliot made to her, Currence, on
or about March 29, 2007, wired $500,0002 from Bank of America in Monterey,
California, to Sovereign International’s bank account in Las Vegas, Nevada. To
obtain the investment money, Currence mortgaged her home, which had previously
been paid for in full.
On or about March 30, 2007, Krug drew on the same Sovereign International
account for a $50,000 check which he endorsed, dated March 29, 2007, and deposited
into a bank account for Krug International, another Krug/Elliot entity, at Bank of
America. The money was derived almost completely from Currence’s investment
money, since prior to the transfer, the Sovereign International bank account had a
balance of $201.26. Elliot and Krug also used the money from Currence to issue
dividend checks to other individuals who had previously invested with them. From
about March 29, 2007, to about April 19, 2007, those checks, totaling approximately
$75,000, were also drawn on the Sovereign International bank account where
Currence had wired her $500,000.
When Currence did not receive her first dividend check promptly, she inquired
with Elliot as to her check. On May 15, 2007, approximately 45 days after investing,
Currence received a $50,000 check from Elliot and Krug. When she did not receive
any subsequent checks, however, she made numerous calls to Elliot to inquire about
her additional monthly interest payments. Currence did not receive any money for
about a year, and Elliot provided her with various excuses. On April 30, 2008,
Currence received a second check from Elliot and Krug, but only in the amount of
$2,000. That check was drawn on a Bank of America account belonging to Divine
Resources, LLC, another company associated with Elliot and Krug.
2
Currence’s investment came from assets she owned jointly with her husband,
and her husband was also included in some of the communications with Krug and
Elliot.
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The $2,000 was not enough to allow Currence to pay her mortgage. When she
explained that she would lose her home if she did not receive her dividends, Elliot
and Krug sent a third check on May 30, 2008, for $4,000. That check was drawn on
the same Divine Resources account.
After Currence received the third check, Elliot began ignoring her attempts to
reach him. She then began correspondence with Krug, by email and by phone,
between June 2009 and August 2012. Throughout that time period, Krug sent
Currence numerous emails that included false and fraudulent statements,
misrepresentations, and empty promises regarding the status of her investment funds
and the payment of interest and repayment of principal on the invested funds. The
emails served to lull Currence into a false sense of security, postpone inquiries and
complaints, and in general conceal the fraud that Elliot and Krug were perpetrating.
At one point, Currence complained to her friend Moreno, who had referred her
to Elliot. Moreno told her the money she had received was “other people’s money.”3
Currence then asked Krug where the money from her dividend payments originated,
and Krug told her it was not “other people’s money,” that the check came from other
trades, and that her $500,000 was invested in the Deutsche Bank in Switzerland.
3
It is clear that Elliot and Krug used Currence’s money to pay previous
investors and themselves, and then used “other people’s money” to provide dividend
checks to Currence. Another investor, Rose DeVaul, provided Krug and Elliot with
$100,000 in April 2007. The investment terms were similar to Currence’s agreement.
Prior to the deposit of the $100,000, Sovereign International’s bank account had a
$9,232.23 balance. From April 2007 until the end of July 2007, Elliot and Krug
issued checks drawn on that account to previous investors. The checks totaled
approximately $70,000 during that time period, and one of the checks, dated May 15,
2007, was issued to Currence for $50,000. DeVaul herself only ever received one
dividend check from Elliot and Krug, in the amount of $5,000.
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Currence eventually contacted the Arkansas Securities Department in Little
Rock, Arkansas. She was told that Elliot and Krug were already the subject of an
ongoing investigation with the Arkansas Securities Department. Currence provided
the Securities Department with documentation and recorded phone calls, and the
Department then contacted the FBI, which initiated an investigation.
Krug was charged with one count of conspiracy to commit wire fraud. At a
hearing on April 14, 2014, Krug informed the district court4 that he wanted to waive
his right to appointed counsel and proceed pro se. The court engaged in a colloquy
with Krug in order to ensure he was “fully aware of the dangers and risks associated
with self-representation.” Yet “Krug was persistently evasive and refused to directly
answer the Court’s questions. Because of his obstructive behavior, the Court denied
his request to proceed pro se” on April 15, 2014.
On August 8, 2014, Krug’s case was reassigned to the Honorable Timothy L.
Brooks. On September 26, 2014, Krug filed another motion to proceed pro se. Judge
Brooks first analyzed Krug’s conduct at the previous hearing, where the colloquy
consisted of a series of questions regarding his ability to represent himself and where
Krug was informed that he faced up to 20 years in prison if convicted. When Judge
Holmes inquired if Krug understood the requirements of proceeding pro se, however,
Krug did not answer affirmatively. He instead responded that he would “represent
the corporate entity that you are—as a third party intervenor.” Judge Brooks
reiterated Judge Holmes’ finding that Krug’s refusal to answer was obstructionist.
The court also considered Krug’s behavior in the ensuing months between the first
and second hearings. During that time, Krug mailed documents to the court that the
district court concluded were irrelevant and nonsensical.
4
The Honorable P.K. Holmes, III, Chief United States District Judge for the
Western District of Arkansas.
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One of these mailings was entitled his “Affidavit of Truth Notice of
Conditional Acceptance of Offer Upon Proof of Claim,” which Krug prepared pro se.
The district court described the Affidavit as an “attempt[] to piece together legal
language from various sources that are inapplicable to his criminal case.” Krug
referred to himself as ‘Nicholas Krug, a Real, living man, a Party in Interest (hereafter
Affiant), as sui juris, ex rel, the only Authorized Representative for Nicholas Krug,
who is neutral in public, who is unschooled in law, and making a special appearance,
but not appearing generally, before this court as a Third Party Intervener, under the
supplemental rules of Admiralty, Rule E(8) . . . .” Based in part on these mailings,
the court concluded that Krug did not understand the rules and legal proceedings such
that he could represent himself at trial.
The district court also concluded that Krug failed to recognize the authority of
the court to preside over his case, as evidenced by a pro se mailing in which he stated
“The alleged Plaintiff, United States of America, and also the U.S. District Court
Western District of Arkansas . . . has no jurisdiction or valid contract to proceed
against Affiant, thereby enacting a default judgment in commerce.” The court found
that Krug had not identified any change in circumstances that would alter the analysis
of whether he could proceed pro se, especially considering the trial was set to begin
within two weeks, and therefore denied Krug’s motion. Krug was represented by
counsel at trial and ultimately convicted. Krug now challenges the sufficiency of the
evidence and the denial of his motion to represent himself at trial. We have
jurisdiction pursuant to 28 U.S.C. § 1291, and finding no error, we affirm.
II. Sufficiency of the Evidence
Krug alleges that there was insufficient evidence for his conviction because
there was no evidence to show he intentionally participated in the conspiracy. We
review a claim of insufficient evidence to support a guilty verdict de novo, viewing
“the evidence in the light most favorable to the jury’s verdict, drawing all reasonable
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inferences in favor of the verdict, and reversing ‘only where no reasonable jury could
find all the elements beyond a reasonable doubt.’” United States v. Cole, 721 F.3d
1016, 1021 (8th Cir. 2013) (quoting United States v. Louper-Morris, 672 F.3d 539,
555 (8th Cir. 2012)).
To sustain Krug’s conviction, the government was required “to prove: (1) there
was an agreement between two or more persons to commit . . . wire fraud, (2) [Krug]
knew of the agreement, and (3) [Krug] intentionally joined the agreement.” Id. at
1021 (citing Louper-Morris, 672 F.3d at 555).
Krug’s sufficiency argument hinges on the fact that he did not have direct
contact with Currence during the preliminary investment discussions she had with
Elliot. He therefore alleges that he did not have specific knowledge of the
misrepresentations Elliot made to her. However, “[p]roof of a defendant’s
involvement in a conspiracy may . . . be demonstrated by direct or circumstantial
evidence.” Cole, 721 F.3d at 1022 (quoting United States v. Lopez, 443 F.3d 1026,
1030 (8th Cir. 2006) (en banc)).
There were numerous pieces of evidence supporting Krug’s intentional
involvement in the scheme. Elliot and Krug both signed the “Joint Venture
Agreement” that contained the terms of Currence’s investment with Sovereign
International and was sent to Currence. Krug and Elliot were also both signatories
and account holders for the Sovereign International bank account where Currence
wired her $500,000. After receiving Currence’s money, Krug endorsed a check cut
from Sovereign International’s account and deposited it into Krug International’s
account at Bank of America. Elliot and Krug were both signatories on that account
as well. Krug and Elliot both signed all of the checks sent to Currence, drawn on
accounts for which Elliot and Krug were both account holders and signatories.
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Also incriminating were the recorded conversations between Krug and
Currence that Currence eventually sent to the Arkansas Securities Department. In
them, Krug stated that Currence’s “interest check” had come from a trade and that
they would not be able to give her entire investment back within the year. Krug told
Currence that her money was invested in Switzerland, and sent emails making false
promises and misrepresentations to Currence regarding the status of her invested
funds and the interest payments she was promised. Viewed in the light most
favorable to the jury’s verdict, with all reasonable inferences drawn in favor of the
verdict, the evidence was sufficient to prove that Krug intentionally participated in
the agreement to defraud investors.
Krug makes an additional argument that he did not have the requisite intent to
defraud Currence. “Intent is an essential element of” wire fraud, but “[f]raudulent
intent need not be proved directly and can be inferred from the facts and
circumstances surrounding a defendant’s actions.” United States v. Flynn, 196 F.3d
927, 929 (8th Cir. 1999) (citations omitted). Krug made misrepresentations to
Currence about where her money was and where the interest payments came from.
Even if Krug’s theory that his misrepresentations were innocent and unknowing were
consistent with the evidence, the government’s theory that Krug had the requisite
intent also was consistent with the evidence. Where “[b]oth theories are consistent
with the evidence presented . . . we will not upset the jury’s verdict.” Id. at 930. “The
government’s evidence need not exclude every theory except guilt in order for a jury
to find a defendant guilty,” and the evidence was sufficient to support the verdict
here. Id. at 929.
III. Right to Proceed Pro Se
Krug alleges that the district court erred in denying his motion to proceed pro
se. We review the district court’s decision de novo. United States v. Mosley, 607
F.3d 555, 558 (8th Cir. 2010) (citing United States v. Mahasin, 442 F.3d 687, 691
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(8th Cir. 2006)). The Sixth Amendment grants a defendant the right to self-
representation, Faretta v. California, 422 U.S. 806, 819–20 (1975), but that right is
not absolute. United States v. Edelmann, 458 F.3d 791, 808 (8th Cir. 2006). The
defendant must understand the consequences of proceeding pro se and be competent
to stand trial as evidenced by an understanding of the nature of the legal proceedings
against him. See United States v. Turner, 644 F.3d 713, 720–21 (8th Cir. 2011).
Moreover, the right to self-representation may be denied or terminated “when the
defendant engages in serious obstructionist misconduct.” United States v. Mosley,
607 F.3d 555, 558 (8th Cir. 2010) (citations omitted). The “government’s interest in
ensuring the integrity and efficiency of the trial at times outweighs the defendant’s
interest in acting as his own lawyer,” Martinez v. Court of Appeal of Cal., 528 U.S.
152, 162 (2000), and a “defendant is not entitled to use the right of self-representation
‘as a tactic for delay, for disruption, for distortion of the system, or for manipulation
of the trial process.’” Mosley, 607 F.3d at 558 (quoting Edelmann, 458 F.3d at808–09).
We conclude that the reasoning of the district court was sufficient to support
its decision on self-representation. The district court found that Krug refused to
directly answer questions during the colloquy, and that he did not affirmatively
answer when asked if he understood the charges against him and the serious
consequences that could result from a guilty verdict. For example, when asked if he
understood that he would have to follow the court’s rules during trial, Krug simply
said: “Sir, again, I’m here as a third-party intervenor for that corporate entity that you
have that you’re trying to get me to agree that I am. I am the owner of that name. I
am not that entity that you’re referring to.” He also refused to answer when the court,
after explaining the potential risks of self-representation, inquired whether he still
wanted to represent himself. The district court fairly viewed such behavior as
obstructionist, because it directly interfered with its ability to determine whether Krug
could provide a knowing and voluntary waiver of his right to counsel. Moreover,
Krug’s subsequent behavior and mailings to the court bolstered the district court’s
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decision on self-representation, since his arguments were either unintelligible or
irrelevant to his case, and they expressly rejected the jurisdiction of the court where
his trial would be held. Under these circumstances, the district court was unable to
determine that Krug’s attempted waiver of his right to counsel was knowing and
voluntary, and therefore did not err in denying Krug’s motion to proceed pro se. See
Mosley, 607 F.3d at 559.
IV. Conclusion
We affirm the judgment of the district court.
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