Hmmm, it's kind of hard to tell from that little picture. If you can get ahold of the books 'Knitting on the Edge' and 'Knitting Over the Edge' by Nicky Epstein you might get some hints in there. I know there are ways to do a fringe that involves dropping stitches....that's what I thought of when I read your description but I might be totally missing it, too. Hope you figure something out!