United States District Court, W.D. Arkansas, Harrison Division
MAGISTRATE JUDGE'S REPORT AND
HONORABLE MARK E. FORD UNITED STATES MAGISTRATE JUDGE
the Court is the Petitioner's Motion Under 28 U.S.C.
§ 2255 to Vacate, Set Aside, or Correct a Sentence by a
Person in Federal Custody filed April 28, 2017. (ECF No.
131). The United States filed its response on May 31, 2017.
(ECF No. 134). Petitioner filed a reply on June 30, 2017.
(ECF No. 137). The matter is ready for Report and
October 30, 2013, Defendant/Petitioner, Nicholas Krug
(“Krug”), was named in an Indictment charging him
with knowingly and willfully devising a scheme to defraud
persons by means of materially false and fraudulent
pretenses, representations, and promises, and with one count
of wire fraud, all in violation of 18 U.S.C. § 1343.
(ECF No. 1). A Summons was issued directing Krug to appear on
November 12, 2013, and Krug appeared before the Hon. James R.
Marschewski, U.S. Magistrate Judge, for arraignment on that
date at which time Krug entered a not guilty plea to the
Indictment. (ECF No. 16). Phillip A. Moon
(“Moon”), a Criminal Justice Act panel attorney,
was appointed to represent Krug. (ECF No's. 16, 23). Krug
was released on bond. (ECF No's. 16, 19).
Superseding Indictment was filed on December 11, 2013,
charging Krug with knowingly and willfully devising a scheme
to defraud persons by means of materially false and
fraudulent pretenses, representations, and promises, and with
one count of conspiracy to commit wire fraud, all in
violation of 18 U.S.C. § 1349. (ECF No. 27). Krug was
arraigned on the Superseding Indictment on December 18, 2013,
and Krug entered a plea of not guilty to the Supreseding
Indictment. (ECF No. 34). The Government responded to
Moon's request for discovery on December 18, 2013. (ECF
and his Co-Defendant, Charles Edward Elliott
(“Elliott”), jointly filed a motion to change
venue on March 10, 2014. (ECF No. 41). That motion was denied
on March 17, 2014. (ECF No. 43). A second joint motion for
change of venue was filed on September 18, 2014. (ECF No.
58). It was denied on September 25, 2014. (ECF No. 62).
April 10, 2014, Krug sent the Court a letter in which he
expressed a desire to represent himself. (ECF No. 123, p. 3).
The Hon. P. K. Holmes, III, Chief U.S. District Judge,
scheduled a hearing on April 14, 2014 to consider Krug's
continued representation by appointed counsel. (ECF No. 44).
At the hearing, Krug engaged in conduct commonly associated
with “sovereign citizens, ” for example, when
asked to come forward into the well of the Court, Krug
responded, “Sir, are you inviting me aboard?”
(ECF No. 123, p. 3). When ordered to come forward, Krug
stated: “Sir, I am a live, living human being. I'm
here as a third-party intervenor for the court for the entity
of Nicholas Krug, if that's who you are referring
to.” (ECF No. 123, pp. 3-4). The Court then asked
questions to make sure Krug understood the consequences of
representing himself. When asked his full name, Krug asked,
“[a]re you speaking to Nicholas Krug, the live, living
human being or are you speaking to the corporation that's
listed on the documents?” (ECF No. 123, p. 7). He then
stated, “I am the live, living human being, and I will
answer that my name is ... Nicholas Joseph Krug.” (ECF
No. 123, p. 8). The Court cautioned Krug that there are
consequences of self-representation, that one must follow the
rules of the Court, and that the right of self-representation
can be forfeited. (ECF No. 123, pp. 9-10). When asked if he
understood that, Krug responded: “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 the entity that
you're referring to.” (ECF No. 123, p. 10). Krug
maintained this position when asked if he wished to represent
himself, prompting Judge Holmes to rule: “I tell you
what, Mr. Krug, you are engaging in what's called - - the
Court construes as obstructionist behavior, therefore, you
have forfeited your right to represent yourself in this
proceeding, and so you're going to be represented by Mr.
Moon in this proceeding. So your request to proceed pro
se is going to be denied and you're going to be
represented by Mr. Moon in the proceeding.” (ECF No.
123, pp. 11-12).
Court also addressed the Government's motion to compel
production of documents (ECF No. 46) at the hearing on April
14, 2014, stating: “. . . the United States learned
that the Defendant Nicholas Krug has possession of documents
related to the case. Through no fault of the defense
attorney, the defendants refused to produce the documents
that they intend to use at trial. . . . so I am going to
grant the government's motion to compel the production of
documents and order that [Defendants] produce the documents
that they intend to use in the defense of their case at the
trial that the Court intends to conduct.” (ECF No. 123,
September 26, 2014, just ten days before the date scheduled
for jury trial, Krug filed a motion to proceed pro
se with stand-by counsel. (ECF No. 63). Referring to
Judge Holmes' April 14, 2014 ruling denying Krug leave to
proceed pro se, the Hon. Timothy L.
Brooks, U.S. District Judge, commented that
“the ensuing months have only confirmed the wisdom of
Judge Holmes' decision as Defendant has continued to mail
irrelevant, nonsensical documents to the Court . . .”
(ECF No. 64, p. 2). Finding that Krug was continuing to
engage in obstructionist behavior, the Court again denied
leave for Krug to represent himself. (ECF No. 64).
trial was held on October 6-7, 2014. The Government presented
testimony from the following witnesses at trial: Theodore
“Ted” Holder, a senior staff attorney at the
Arkansas Securities Department, who investigated Krug's
activities and referred the matter to the Federal Bureau of
Investigation (“FBI”) for further investigation
(ECF No. 117, pp. 125-54); Ruthann Currence, the victim of
Krug's scheme to defraud (ECF No. 117, pp. 156-259; ECF
No. 118, pp. 9-62); Robert Cessario, an FBI Special Agent,
who investigated the case (ECF No. 118, pp. 63-85); Sally
Ballou, a regional service manager for Wells Fargo Bank (ECF
No. 118, pp. 86-93); Terry Hendrix, a vice-president,
security specialist, and records custodian for Arvest Bank
(ECF No. 118, pp. 94-98); Edward Fillmore, a market manager
and records custodian for Bank of America in the State of
Arkansas (ECF No. 118, pp. 99-107); and, Steven Williams, a
forensic accountant with the FBI (ECF No. 118, pp. 108-135).
Government introduced several exhibits at trial, including
correspondence from Sovereign International, the Joint
Venture Agreement between Sovereign International and
Currence, bank routing instructions, CD's of recorded
phone calls, e-mails, checks and other bank records. (ECF No.
the Government rested, Krug's counsel moved for a
judgment of acquittal, which motion was denied by the Court.
(ECF No. 118, pp. 137-38). The defense then rested without
calling any witnesses. (ECF No. 118, p. 140). On October 7,
2014, the jury returned its verdict finding Krug guilty of
conspiracy to commit wire fraud as charged in the Superseding
Indictment. (ECF No's. 75, 77).
initial Presentence Investigation Report (“PSR”)
was prepared by the United States Probation Office on
December 4, 2014. (ECF No. 80). On December 22, 2014, the
Government advised that it had no objections to the initial
PSR. (ECF No. 82). On December 22, 2014, Krug advised that he
had eight objections to the initial PSR. (ECF No. 86-1). Of
those objections that affected the Sentencing Guidelines
calculation, Krug objected to: the four-level enhancement
pursuant to U.S.S.G. § 2B1.1(b)(19)(A) for representing
himself to be an “investment advisor”; the
two-level enhancement pursuant to U.S.S.G. §
2B1.1(b)(10)(C) for use of “sophisticated means”
in the commission of the offense; and, the denial of a
reduction for acceptance of responsibility. (Id.).
Finding that the enhancements and denial of acceptance of
responsibility were correct, no changes to the PSR were made
by the Probation Officer in response to Krug's
January 7, 2015, a final PSR was submitted to the
Court. (ECF No. 86). The final PSR reported that
Krug's conduct called for a base offense level of seven.
(ECF No. 92, ¶ 41). Finding that the loss was more than
$400, 000 but less than $1, 000, 000, the offense level was
increased by 14 levels. (ECF No. 92, ¶ 42). A two-level
increase was assessed because the offense involved
sophisticated means. (ECF No. 92, ¶ 43). Finally, a
four-level increase was assessed because the offense involved
a violation of securities law and Krug represented himself to
be an investment advisor. (ECF No. 92, ¶ 44). Due to
these enhancements, Krug's adjusted offense level was 27.
(ECF No. 92, ¶ 48). No reduction for acceptance of
responsibility was made, so Krug's total offense level
was 27. (ECF No. 92, ¶¶ 49-50).
lack of criminal history resulted in a criminal history score
of zero, placing him in criminal history Category I. (ECF No.
92, ¶¶ 53-56). The statutory maximum term of
imprisonment for Krug's offense is 20 years. (ECF No. 92,
¶ 92). Based upon a total offense level of 27 and
criminal history Category I, Krug's advisory Guidelines
range was determined to be 70 to 87 months imprisonment.
appeared for sentencing on January 29, 2015. (ECF No. 96).
Upon inquiry by the Court, Krug stated, “I don't
understand how this Court can move forward when I have filed
documents challenging jurisdiction, ” and he expressed
not understanding the purpose of the sentencing
proceedings. The Court then informed Krug of the nature
of the proceeding, and Krug was given an opportunity to
confer further with his counsel concerning the final PSR.
(ECF No. 119, pp. 2, 6). The Court summarized Krug's
objections to the PSR (ECF No. 119, pp. 11-12), and argument
was presented by counsel. The Court sustained Krug's PSR
objections to the enhancements for use of sophisticated means
and commission of the offense by an investment advisor (ECF
No. 119, p. 14), but Krug's objection to not receiving a
reduction for acceptance of responsibility was overruled (ECF
No. 119, pp. 19-22). These rulings resulted in a reduction of
six levels (ECF No. 119, p. 14), placing Krug at a total
offense level of 21 (ECF No. 119, p. 23). The Court
determined Krug's advisory Guidelines range was 37-46
months imprisonment. (ECF No. 119, p. 24).
his allocution, Krug stated “[w]e did invest those
funds with three different entities, and those three
different entities stole all this money, ” that
“I had never had any intentions of defrauding anybody
out of anything, ” that “I'm not a [thief]
like this Court has made out to be, ” and that:
“I did not commit fraud. We did not defraud the
Currences out of their money. Other people took their
money.” (ECF No. 119, pp. 36-39). Judge Brooks noted
that a jury of 12 people found Krug guilty, and that
“you've not done yourself any favors by standing up
here and telling me that you didn't do anything wrong
...” (ECF No. 119, pp. 39-40). Finding that a sentence
in the middle of the Guidelines was appropriate, the Court
sentenced Krug to 42 months imprisonment, to be followed by
three years supervised release, no fine, restitution in the
amount of $539, 000, and imposition of a $100.00 special
assessment. (ECF No. 96, p. 1; ECF No. 119, pp. 43-47). Krug
was allowed to remain on bond and self-surrender no later
than 1:00 p.m. on Friday, February 20, 2015. (ECF No. 96, p.
2; ECF No. 119, p. 53). Judgment was entered by the Court on
February 2, 2015. (ECF No. 102).
timely filed an appeal to the Eighth Circuit Court of Appeals
on February 12, 2015. (ECF No. 107). An arrest warrant was
issued when Krug failed to surrender to the Federal Bureau of
Prisons as ordered (ECF No. 112), and Krug was taken into
custody on February 21, 2015 (ECF No. 114).
appeal, Krug argued 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
erred in denying his motion to proceed pro se and represent
himself at trial. (ECF No. 125-1, p. 2). The Eighth Circuit
Court of Appeals affirmed Krug's conviction and sentence
in an Opinion filed on May 4, 2016. (ECF No. 125-1). A
Mandate was issued on May 31, 2016. (ECF No. 125).
April 28, 2017, Krug filed his pro se Motion Under
28 U.S.C. § 2255 to Vacate, Set Aside, or Correct
Sentence by a Person in Federal Custody. (ECF No. 131). The
motion raises two grounds for relief: (1) “Defective
appointment of counsel, ” and (2) “Access to
Evidence.” (ECF No. 131, pp. 4-5). Attached to
Krug's § 2255 motion is a “Motion for Remand
to Consider Motion Under Fed Rule Crim. P. 33(B)(1)” in
which he asserts newly discovered evidence and further argues
his grounds for habeas relief. (ECF No. 133-1).
United States' response in opposition to the motion was
filed on May 31, 2017. (ECF No. 134). On June 5, 2017, Krug
filed a “Notice of Motion and Motion to Declare the
Grand Jury Unconstitutional and for an Order Dismissing the
Indictment and, in the Alternative, for an Order Granting a
Post-Indictment Preliminary Hearing - Federal” (ECF No.
135), along with a Memorandum of Law in Support (ECF No.
136). Krug filed a reply to the Government's response on
June 30, 2017. (ECF No. 137).
prisoner in custody under sentence . . . claiming the right
to be released upon the ground that the sentence was imposed
in violation of the Constitution or laws of the United
States, or that the court was without jurisdiction to impose
such sentence, or that the sentence was in excess of the
maximum authorized by law, or is otherwise subject to
collateral attack, may move the court which imposed the
sentence to vacate, set aside or correct the sentence.”
28 U.S.C. § 2255(a). “If the court finds that the
judgment was rendered without jurisdiction, or that the
sentence imposed was not authorized by law or otherwise open
to collateral attack, or that there has been such a denial or
infringement of the constitutional rights of the prisoner as
to render the judgment vulnerable to collateral attack, the
court shall vacate and set the judgment aside and shall
discharge the prisoner or resentence him or grant a new trial
or correct the sentence as may appear appropriate.” 28
U.S.C. § 2255(b). A thorough review of Krug's
motion, and the files and records of this case, conclusively
shows that Krug is not entitled to relief, and the
undersigned recommends the denial and dismissal of Krug's
§ 2255 motion with prejudice without an evidentiary
Krug's Rule 33 Motion
attachment to Krug's § 2255 motion (ECF No. 131-1)
purports to be a motion for new trial made under Fed. R. Cr.
P. 33 based on newly discovered evidence, but it also
contains argument in support of his § 2255 motion. To
the extent Krug's Rule 33 motion is based on “newly
discovered evidence, ” it fails because the evidence
referred to was clearly known and available to Krug prior to
trial. Krug even states, “[a]ll documents, A through H,
are all documents that Krug took to court-appointed Attorney
Phillip Moon's office and Moon's secretary copied and
gave them to Moon.” (ECF No. 131-1, p. 19). Krug faults
Moon for not presenting these documents at trial, but that is
a different issue and will be addressed below. Considering
the documents in the context of Krug's Rule 33 motion for
a new trial, it is undisputed that the documents were in
Krug's possession prior to trial; he knew about them and
took them to his attorney; so, these documents are clearly
not “newly discovered evidence.” See United
States v. Vazquez-Garcia, 340 F.3d 632, 641 (8th Cir.
2003) (motion for new trial on the ground of newly discovered
evidence cannot be granted on the basis of evidence that the
defendant was aware of before trial).
Krug's Rule 33 motion, if considered separately from his
§ 2255 motion, should be denied.
Issues Raised on Direct Appeal Cannot be
raised two issues in his direct appeal to the Eighth Circuit
Court of Appeals: (1) insufficiency of the evidence to
support his conviction, and (2) denial of his request to
represent himself. Those issues were decided adversely to
Krug by the Eighth Circuit. United States v. Krug,
822 F.3d 994 (8th Cir. 2016). (ECF No. 125). Krug raises the
same issues again in the attachment to his § 2255 motion
when he claims there was no proof of a conspiratorial
agreement and that he was erroneously denied the right to
represent himself. (ECF No. 131-1, p. 22). Claims that were
raised and decided adversely to a criminal defendant on
direct appeal cannot be re-litigated on a motion to vacate
pursuant to 28 U.S.C. § 2255. United States v.
Lee, 715 F.3d 215, 224 (8th Cir. 2013) (internal
citations omitted); see also Sun Bear v. United
States, 644 F.3d 700, 702 (8th Cir. 2011) (citing
Davis v. United States, 417 U.S. 333, 346-47
two claims are subject to summary dismissal in this
Non-Ineffective Assistance of Counsel Claims Are Procedurally
raises two vaguely stated grounds for relief in his §
2255 motion: (1) “defective appointment of counsel,
” citing United States v. Cronic, 466 U.S. 648
(1984), and (2) “access to evidence, ” citing
Arizona v. Youngblood, 488 U.S. 51 (1988). (ECF No.
131, pp. 4-5). The attachment to Krug's § 2255
motion also raises two other non-ineffective assistance of
counsel claims: the Indictment may have been procured by
fraud, and Krug was denied the right to be tried by a jury of
his peers. (ECF No. 131-1, pp. 21, 22). Krug's
non-ineffective assistance of counsel claims are procedurally
barred because they were not raised in Krug's direct
United States Supreme Court has “long and consistently
affirmed that a collateral challenge may not do service for
an appeal.” United States v. Frady, 456 U.S.
152, 165 (1982) (internal citations omitted). Relief under
§ 2255 “is reserved for transgressions of
constitutional rights and for a narrow range of injuries that
could not have been raised on direct appeal and, if
uncorrected, would result in a complete miscarriage of
justice.” United States v. Apfel, 97 F.3d
1074, 1076 (8th Cir. 1996).
failure to raise an issue on direct appeal ordinarily
constitutes a procedural default and precludes a
defendant's ability to raise that issue for the first
time in a § 2255 motion. Dejan v. United
States, 208 F.3d 682, 685 (8th Cir. 2000) (citing
Bousley v. United States, 523 U.S. 614, 621 (1998)).
“Where a defendant has procedurally defaulted a claim
by failing to raise it on direct review, the claim may be
raised in habeas only if the defendant can first demonstrate
either ‘cause' and actual ‘prejudice' or
that he is ‘actually innocent.'”
Bousley, 523 U.S. at 622. “For cause to exist,
the external impediment, whether it be governmental
interference or the reasonable unavailability of the factual
basis for the claim, must have prevented petitioner from
raising the claim.” McCleskey v. Zant, 499
U.S. 467, 497 (1991). Krug makes no such showing here. He
does not demonstrate how the factual basis for his claims was
not reasonably available to him in time to pursue relief on
argues “defective appointment of counsel, ”
citing Cronic for the proposition that “there
could be situations in which the appointment of counsel was
so deficient as to be treated as an automatic violation of
the Sixth Amendment.” (ECF No. 131-1, p. 4). Krug also
vaguely alleges a violation of the prosecution's duty to
disclose evidence, including exculpatory material, citing
Youngblood. (ECF No. 131-1, p. 5). Krug fails,
however, to allege any specific facts in support of these
claims and, critical to the analysis of “cause”
to excuse his procedural default, he does not explain how the
facts underlying these claims were not available to him in
time to raise the issues in this Court and on direct appeal.
He states no facts that would place his case within the scope
of Cronic's presumption of ineffectiveness, and
he alleges no facts to support his claim that the Government
failed to produce exculpatory evidence. Vague and conclusory
allegations, unsupported by any specifics, are subject to
summary dismissal. See Hollis v. United States, 796
F.2d 1043, 1046 (8th Cir. 1986); Smith v. United
States, 677 F.2d 39, 41 (8th Cir. 1982).
had twice sought, and been denied, leave of the Court to
represent himself, so he was well familiar with the
Court's appointment of attorney Moon and the actions
taken by Moon to prepare for and represent Krug during the
two day jury trial. Having been present at trial, Krug also
saw the evidence presented by the Government at trial. He had
knowledge, therefore, of the factual basis for his claims of
“defective appointment of counsel” and
“access to evidence” in time to pursue relief on
facts underlying Krug's two other non-ineffective
assistance of counsel claims - that the Indictment was
procured through fraud and that Krug was denied a jury of his
peers - were also available to Krug in time to appeal.
Krug argues that his case is based on fraud if an affidavit
of the victim, Ruthann Currence (“Mrs.
Currence”), was used to obtain the indictment against
him. This is so, according to Krug, because the affidavit was
actually prepared by Theodore “Ted” Holder
(“Mr. Holder”), a senior staff attorney with the
Arkansas Securities Department, and “then signed by
Ruthann Currence knowing that Ted made the affidavit out, in
his words, to suit himself and inserted at least one sentence
on his own that he admits that ‘it is not on the
tape.'” (ECF No. 131-1, p. 21). This does not
constitute “cause” to overcome the procedural
default because the factual basis for the claim could have
been developed at the time of trial. Both Mr. Holder and Mrs.
Currence testified at trial, and the issue could have been
addressed at that time and on appeal.
Krug claims he was denied the right to a jury of his peers.
He states that the prosecutor and main witness are women, and
that the jury was comprised of 11 women and one man. He
further asserts that one of the women jurors, who became the
foreperson of the jury, was “disqualified because she
had lost money in an investment.” (ECF No. 131-1, p.
22). These facts, quite obviously, were known to Krug at the
time of trial, and he could have raised his claim then and on
does not assert that some interference by government
officials, or some external impediment, prevented him from
raising any of these claims in the trial court or on direct
non-ineffective assistance of counsel claims Krug now asserts
as grounds for § 2255 relief were simply not raised on
direct appeal, and Krug is barred from raising those issues
for the first time in this § 2255 proceeding.
Krug has not shown adequate cause to overcome the procedural
bar in his case, the Court need not consider the issue of
actual prejudice. Ashker v. Class, 152 F.3d 863, 871
(8th Cir. ...