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The answer to this can be found in Chapter 8. Basically, he is sentenced to death because he has cheated Napoleon and made him look like a fool. He will be boiled alive if captured, Napoleon says.
What Frederick has done is to trick Napoleon when Napoleon sold him the wood pile left over from Jones's time on the farm. Napoleon insisted on being paid in cash rather than by a check. But it turned out that the cash that Frederick brought (and that Napoleon proudly showed off the the animals) was fake. Frederick had tricked Napoleon.
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