United States v. Hussein

In the

United States Court of Appeals

For the Seventh Circuit

No. 11-2248

U NITED S TATES OF A MERICA,

Plaintiff-Appellee,

v.

N AEIL H USSEIN,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 10 CR 482-1— Rebecca R. Pallmeyer, Judge.

A RGUED O CTOBER 5, 2011—D ECIDED D ECEMBER 13, 2011

Before E ASTERBROOK, Chief Judge, and M ANION and

R OVNER, Circuit Judges.

M ANION, Circuit Judge. Naeil Hussein and his girlfriend,

Lisa Bazian, operated what appeared to be convenience

stores on the south side of Chicago. In fact they were little

more than fronts where the couple rang up phony sales for

food-stamp recipients looking to exchange their benefits

for discounted amounts of cash. When federal investigators

discovered the fraudulent scheme at one location, the pair

simply obtained government authorization to accept food

2 No. 11-2248

stamps at a different address where they continued their

operation. Through a surrogate Hussein opened a third

store and even attempted to qualify an ineligible restau-

rant. Hussein eventually pleaded guilty to eight counts of

wire fraud, 18 U.S.C. § 1343, and was sentenced to a total of

60 months’ imprisonment and ordered to pay almost $1.7

million in restitution. On appeal he challenges the amount

of loss and a 4-level leader-ship adjustment used in

calculating his offense level, as well as the reasonableness

of his prison term. We affirm the judgment.

I.

Hussein and Bazian launched their scam at The Spot

Food Mart (“Spot Mart”), a store that Bazian had acquired

in the Englewood neighborhood of Chicago. In 2003 Bazian

applied to the United States Department of Agriculture on

behalf of Spot Mart to participate in the federal Food

Stamp Program. The program supplies low-income persons

with debit cards, known in Illinois as LINK cards, that can

be used to purchase food.1 The USDA approved

Spot Mart’s application but not before making Bazian send

proof that she was not connected to the store’s prior owner,

who had accepted food stamps but later was sanctioned for

abusing the program. Spot Mart brought in a little more

than $2,000 in benefits in June 2004, its first month with a

1

Congress has since renamed the program the Supplemental

Nutrition Assistance Program. See Food, Conservation, and

Energy Act of 2008, Pub. L. No. 110-246, § 4001(b), 122 Stat. 1651,

1853 (2008).

No. 11-2248 3

LINK scanner, but by October 2005, the monthly total had

ballooned more than 60-fold to nearly $130,000. Near the

end of that month, a USDA informant twice used a LINK

card at Spot Mart to trade food-stamp benefits for

lesser amounts of cash. The description the informant gave

of the clerk who processed one of those fraudulent transac-

tions matched Hussein. The next week federal agents

executed a search warrant at the store. During that search

a USDA agent interviewed Hussein, the store manager,

who denied trading cash for food-stamp benefits. The

USDA disqualified Bazian from the program but took no

action against Hussein.

About three months later Hussein applied to the Food

Stamp Program on behalf of a second Englewood store,

Halsted Food Mart (“Halsted”). Despite his role as man-

ager at Spot Mart, the USDA approved the application.

Again using an informant, the USDA developed evidence

that the new location, like the old, was nothing more than

a front for swapping benefits for cash. Once more authori-

zation to participate in the program was revoked, but not

before the Halsted scam had run for more than two years

and at its height brought in over $100,000 a month in

benefits.

In addition, shortly before federal agents executed a

search warrant at Halsted, one of Hussein and Bazian’s

employees, Dwight Fleming, applied to the program

on behalf of a third Englewood location, Route 69 Pal-

ace. Fleming represented on the application that he owned

Route 69 but later admitted that Hussein, the true owner,

had paid him to claim ownership. The USDA developed

4 No. 11-2248

evidence that Hussein and Bazian were trading cash for

benefits at Route 69, though not before the pair had run

their scam there for more than seven months. Hussein also

applied to the Food Stamp Program on behalf of a fourth

Englewood business, Spot Chicken Fish & Pizza (“Spot

Chicken”), but the USDA rejected that application, presum-

ably because benefits generally cannot be used at restau-

rants. See 7 C.F.R. § 278.1(b)(1)(iv). Still, for reasons that

are unclear from the record, food-stamp recipients

were able to trade their benefits for cash at Spot Chicken.

In total, Hussein and Bazian ran their fraud for more than

four years.

According to bank records for Spot Mart and Halsted, the

two locations brought in a total of $1,859,939 in

LINK benefits. The government calculated that, during

roughly that same time period, Hussein and Bazian wrote

checks for food inventory totaling $164,660 from the

accounts where LINK funds were deposited. Route 69 took

in $128,198 in LINK benefits, and checks for food totaling

$49,043 were drawn on the account where those benefits

were deposited during the time the store had a LINK

scanner. According to the government, Spot Chicken

brought in another $228,497 in LINK receipts despite

having no authorization to accept LINK cards.

Following Hussein’s guilty plea, the probation officer

recommended in the presentence report that the district

court assess the loss from the fraud as $1,695,250 and apply

a 16-level increase. See U.S.S.G. § 2B1.1(b)(1)(I). The proba-

tion officer reached this figure by subtracting the checks

Hussein and Bazian wrote for food inventory at Spot Mart

No. 11-2248 5

and Halsted from the amount of LINK redemptions at

those locations. The probation officer’s total in-

explicably ignores the LINK receipts at Route 69 and Spot

Chicken, but still Hussein objected that the loss calculation

was too high. His lawyer contended, without explanation,

that inventory costs for food exceeded those listed in the

presentence report and argued that the government’s

formula failed to account for “legitimate profit” on food

sales. But Hussein did not present evidence of additional

inventory costs, nor did he attempt to quantify

the authorized food items sold at Spot Mart and Halsted.

Instead, counsel simply asserted without explanation that

the government’s loss was about $900,000, enough to yield

a 14-level increase but below the $1 million threshold for

th e pr op os ed 16 - l e v e l in c re as e. See U .S.S.G .

§ 2B1.1(b)(1)(H). The government responded that the

probation officer’s calculation was, if anything, under-

stated because it did not incorporate relevant conduct at

Route 69 or Spot Chicken and also assumed that every food

purchase at Spot Mart and Halsted was made with LINK

benefits rather than cash. And even focusing on just the

LINK sales, the government argued, Hussein was not

entitled to an adjustment for gross profit because he and

Bazian tried to mask their scheme by requiring persons

selling their benefits to buy a small food item

when presenting their LINK cards. The district

court overruled Hussein’s objection and adopted

the probation officer’s calculation. The court offered

its “layperson’s understanding” that grocery stores operate

at a “very low profit margin” and reasoned that any

adjustment to account for gross profit would be too

minimal to alter the guidelines calculation.

6 No. 11-2248

The parties also disagreed at sentencing about what

adjustment to apply for Hussein’s role in the offense. The

probation officer recommended a 4-level increase,

see U.S.S.G. § 3B1.1(a), after concluding that Hussein had

been “an organizer or leader of a criminal activity that

involved five or more participants or was otherwise

extensive.” The probation officer reasoned that the scheme

“involved at least three participants and was otherwise

extensive (in that benefits were exchanged for cash with

several other individuals/participants).” Hussein urged the

district court to apply instead a 2-level adjustment. Id. §

3B1.1(c). Defense counsel said nothing about the number

of people involved in the fraud and contended that the

scheme had been a “basic fraud” that was not exten-

sive. The prosecutor countered that the number of persons

involved could not possibly have been less than five

because, in the government’s view, every LINK cardholder

who illegally traded benefits for cash was a “participant”

in the scheme. The prosecutor also asserted that the scheme

had been extensive. The district court adopted the proba-

tion officer’s recommendation. The judge counted as

participants Hussein, Bazian, and Fleming but did not

comment on the government’s contention that the sellers

of LINK benefits also were participants. Rather, while not

officially labeling the many LINK traders as participants,

the court easily defined the scheme as extensive. She found

it significant that Hussein had run his scam from multiple

locations, supervised employees at his stores, and

traded cash for benefits with “dozens, probably hundreds,

of customers.”

No. 11-2248 7

Based on a total offense level of 24 and a criminal history

category of I, Hussein faced a guidelines imprisonment

range of 51 to 63 months. The government argued for a

sentence within the guidelines. Pointing to the dearth of

grocery stores in Englewood, the prosecutor criticized

Hussein for offering the community nothing more than

“pop, chips, candy, and cash” and speculated that some of

his clients used the cash they got from him to buy drugs.

Hussein’s lawyer countered that the government had

presented no evidence connecting Hussein to the drug

trade and could not hold him responsible for drug use in

Englewood. Counsel also highlighted Hussein’s limited

criminal record, his family ties, and his history of seizures

stemming from a medical condition that had required

brain surgery.

The district court sentenced Hussein to 60 months. The

judge emphasized Hussein’s decision to continue the fraud

after the search at Spot Mart and his bilking of a taxpayer-

funded program. The court also found significant the

breadth of the scheme and the options Hussein had

available to him as a property owner and businessman.

Echoing the government’s theme about the lack of grocery

stores in Englewood, the court commented:

[T]hese individuals who are entitled to be nourished

just like I am really don’t have much of an option here.

I recognize that that’s not directly relevant to the fraud

that’s been charged, but . . . the fraud relies on a

program that is made available to enable poor people

to eat. And in that sense, I think the fact that

Mr. Hussein was essentially providing them with

nothing but chips and pop is relevant.

8 No. 11-2248

The judge did not embrace the prosecutor’s speculation

about drug use, however, and clarified the court’s under-

standing that the prosecutor’s remarks had been “aimed at

the harm that this particular crime imposes on the commu-

nity as opposed to a suggestion about Mr. Hussein’s

knowing culpability.” The court acknowledged Hussein’s

medical condition but concluded that he would receive

adequate treatment in prison and made no mention of his

other arguments in mitigation.

II.

On appeal Hussein first argues that the district court

erred in imposing the 16-level increase under

§ 2B1.1(b)(1)(I) for a loss of more than $1 million because,

Hussein insists, the court ignored “legitimate profit

margin” in assessing what portion of the food-stamp

benefits were obtained fraudulently. Hussein repeats his

assertion made in the district court, again without citing to

any evidence in the record, that the actual loss was about

$900,000, which would have limited the increase to 14

levels under subsection (b)(1)(H).

The proper method to calculate loss from food-stamp

fraud is to subtract legitimate food-stamp sales from total

food-stamp redemptions. United States v. Ali, 619 F.3d 713,

721 (7th Cir. 2010); United States v. Hassan, 211 F.3d 380, 383

(7th Cir. 2000); United States v. Barnes, 117 F.3d 328, 335 (7th

Cir. 1997). When precise evidence about legitimate sales is

unavailable, the sentencing court may rely on the estimate

of a store’s monthly eligible food sales given to the USDA

during the application process. See United States v. Haddad,

No. 11-2248 9

462 F.3d 783, 794 (7th Cir. 2006); United States v. Alburay,

415 F.3d 782, 790 (7th Cir. 2005).

Hussein is correct to the extent he contends that the

district court’s loss analysis was incomplete. Merchants

mark up the price of the inventory they sell, and

by subtracting only the cost of the food from the LINK

receipts, the court made no attempt to accurately account

for gross profit on legitimate sales. But for several reasons

this misstep had no practical effect on the choice between

subsections (b)(1)(I) and (b)(1)(H). First, the district court’s

loss calculation ignores more than $350,000 in LINK

receipts at Route 69 and Spot Chicken, even though the

fraud at those two locations was relevant conduct because

it was “part of the same course of conduct or common

scheme or plan as the offense of conviction.” See U.S.S.G.

§ 1B1.3(a)(2); United States v. Barnhart, 599 F.3d 737, 748 (7th

Cir. 2010); United States v. Swanson, 483 F.3d 509, 514 (7th

Cir. 2007). In fact, every cent of the $228,497 in LINK

receipts at Spot Chicken was necessarily fraudulent

because that establishment had been denied authorization

to accept food stamps. Second, the district court’s calcula-

tion assumes, to Hussein’s benefit, that legitimate custom-

ers used LINK cards to buy all of the food inventory at

Spot Mart and Halsted, though bank records show that

both stores received a small portion of their proceeds in

cash. Third, just as the district court recognized,

any adjustment for gross profit on the meager

food inventory legitimately sold at these locations would

have been too minimal to affect the guidelines calculation.

In their applications to the USDA, Hussein and Bazian had

estimated $15,000 in monthly sales on food items at Spot

10 No. 11-2248

Mart and $3,900 in monthly food sales at Halsted.

Spot Mart accepted LINK benefits for 18 months, and

Halsted accepted LINK benefits for 27 months, so the

alternative method approved in Haddad and Alburay would

yield estimated legitimate sales totaling $375,300. Subtract-

ing this amount from the LINK receipts at the two loca-

tions equals a loss of $1,484,639, well over the $1 million

minimum for a 16-level increase. And as far as we can tell

from the record, once the relevant conduct from Route 69

and Spot Chicken is added to that figure, the

only conclusion to be drawn is that the loss

amount calculated by the district court is understated,

not overstated.2

2

In a snippet of his discussion about the guidelines loss,

Hussein asserts that the district court’s incomplete methodology

also adversely influenced its calculation of restitution. The court

used the probation officer’s loss calculation to impose a restitu-

tion award of $1,695,250. The amount of restitution does not

always correspond to guidelines loss because the rules for

calculating each differ, see United States v. Middlebrook, 553 F.3d

572, 579 (7th Cir. 2009); United States v. Caputo, 517 F.3d 935, 943

(7th Cir. 2008), but at sentencing Hussein made only a pro forma

objection to the probation officer’s calculation of restitution and

arguably waived even that objection by declining the court’s

invitation to vet the issue at a hearing for that purpose. See

United States v. Roberts, 534 F.3d 560, 571-72 (7th Cir. 2008);

United States v. White, 993 F.2d 147, 148-49 (7th Cir. 1993). And

now on appeal Hussein has omitted from his opening brief any

analysis of the restitution award; his statement of the issues does

not even mention restitution. We have admonished that a party

(continued...)

No. 11-2248 11

Hussein next contends that the district court erroneously

assessed a 4-level increase under § 3B1.1(a). Hussein does

not dispute that he was an organizer or leader of the scam.

But he insists that the court should have added only 2

levels under § 3B1.1(c) because, he maintains, the scheme

was not “otherwise extensive” and did not involve five or

more participants. For purposes of § 3B1.1, a participant

must be “criminally responsible for the commission of the

offense, but need not have been convicted.” U.S.S.G.

§ 3B1.1 cmt. n.1. The government insists, as it did at

sentencing, that anyone who sold food-stamp benefits to

Hussein or Bazian was actively involved in their scam and

thus a “participant” for purposes of § 3B1.1.

This reasoning seems sensible, though the government

could have strengthened its point by introducing evi-

dence—which we presume it possesses—that many of the

LINK cardholders who sold their benefits to Hussein and

Bazian did so repeatedly. Yet simply accepting

(...continued)

waives or abandons a potential appellate claim by not develop-

ing an argument in his brief. Montgomery v. Am. Airlines, Inc., 626

F.3d 382, 392 n.2 (7th Cir. 2010); United States v. Elst, 579 F.3d

740, 747 (7th Cir. 2009). It is not enough “ ’to mention a possible

argument in the most skeletal way, leaving the court to do

counsel’s work, create the ossature for the argument, and put

flesh on its bones.’ ” Bank of Am., N.A. v. Veluchamy, 643 F.3d

185, 190 (7th Cir. 2011) (quoting United States v. Zannino, 895

F.2d 1, 17 (1st Cir. 1990)). Hussein has failed to brief, and thus

abandoned, any claim of error concerning restitution.

12 No. 11-2248

fraud proceeds, stolen goods, or other contraband does not

make recipients participants in the underlying scheme that

produced the ill-gotten benefits when they are simply

customers and not part of the operation. See United States

v. Barrie, 267 F.3d 220, 223 (3d Cir. 2001); United States v.

Egge, 223 F.3d 1128, 1133 (9th Cir. 2000); United States v.

Melendez, 41 F.3d 797, 800 (2d Cir. 1994). What matters is

whether the recipient played an active role in the scheme.

See United States v. Butler, 646 F.3d 1038, 1041-42 (8th Cir.

2011) (counting as participants recipients of fraudulent

checks who cashed checks and split proceeds with other

schemers); United States v. Zichettello, 208 F.3d 72, 108 (2d

Cir. 2000) (counting as participant the recipient of an

illegally discounted car where evidence permitted infer-

ence that recipient was criminally involved in broader

scheme). We decline to decide on which side of this line the

food-stamp sellers in this case fall because we agree with

the district court that the fraud scheme was “otherwise

extensive,” and thus the number of participants does

not matter. An offense can be otherwise extensive

for purposes of § 3B1.1 even if fewer than five

people participated. See U.S.S.G. § 3B1.1 cmt. n.3;

United States v. Sheikh, 367 F.3d 683, 688-89 (7th Cir. 2004);

United States v. Frost, 281 F.3d 654, 658 (7th Cir. 2002). And

a scheme such as this one can be otherwise extensive when

the defendant made a substantial portion of his income

(close to two million dollars) through fraudulent redemp-

tions, continued in operation for an extended period, and

“used many people (including the food stamp vendors)

to make the profit from the scheme.” Sheikh, 367

F.3d at 688-89 (food-stamp fraud); see also United

No. 11-2248 13

States v. Diekemper, 604 F.3d 345, 354 (7th Cir. 2010) (bank-

ruptcy fraud); United States v. Dong Jin Chen, 497 F.3d 718,

722 (7th Cir. 2007) (extortion and tax fraud). Similar factors

were present here; the district court noted that Hussein ran

his scam from multiple locations, traded cash for benefits

with “probably hundreds” of customers, and supervised

employees at his stores. Thus the court did not clearly err

in finding the scheme otherwise extensive.3

3

The facts of this case cast an unfortunate shadow on the

government’s ability to ferret out fraudulent applications from

merchants seeking approval to accept food-stamp benefits, and

an even longer shadow on the government’s willingness to

combat fraud aggressively after its discovery. Presently there are

over 45 million people receiving food stamps—an increase of

almost 70% since October 2007. See Supplemental Nutrition

A ssistance Pro gra m M onth ly D ata, available at

http ://ww w .fns.usd a.gov/pd /34S N A P m o n th ly .h tm (last

visited Nov. 10, 2011). For fiscal year 2010, the program cost

over $68 billion. See Supplemental Nutrition Assistance

Program Participation and Costs, available at

http://www.fns.usda.gov/pd/SNAPsummary.htm (last visited

Nov. 10, 2011). Most of the illegal trafficking occurs in

small stores with limited food supplies, which the

USDA approves “so that low-income participants in areas

with few supermarkets have access to food.” G OVERNMENT

A CCOUNTABILITY O FFICE , S UPPLEMENTAL N UTRITION A SSISTANCE

P ROGRAM : P AYMENT E RRORS AND T RAFFICKING H AVE D ECLINED ,

B UT C HALLENGES R EM AIN 11, 13 (2010), available at

http://www.gao.gov/new.items/d10956t.pdf (last visited Nov.

10, 2011). Perhaps because of the relatively low volume of

(continued...)

14 No. 11-2248

In the alternative Hussein contends that the 4-level

upward adjustment should not apply because he did not

exercise control over at least four participants during

the scheme. But a leader or organizer under § 3B1.1 need

control only one participant, not four. § 3B1.1 cmt. n.2;

United States v. Blaylock, 413 F.3d 616, 621 (7th Cir.

2005). Hussein exercised control over Fleming—the district

court adopted the probation officer’s finding that Hussein

recruited Fleming to participate in the scheme and paid

him to falsely claim ownership of Route 69—and that level

of supervision was sufficient for the adjustment to apply.

3

(...continued)

goods sold in these stores, or perhaps because of a lack

of inspectors, the agency inspects smaller stores only about

once every five years unless there is some indication of

a problem. See id. at 13. While it is repugnant that people

like Hussein have exploited this vulnerable system over the

years, as distressing is the fact that, for every Hussein

who operates such a scheme, there may be hundreds of benefi-

ciaries (LINK cardholders) who commit their own criminal act

by exchanging their food-stamp benefits for quick cash.

See 7 U.S.C. § 2024(b). We can only hope that with the very

large expansion of this program there is a similar expansion

of enforcement personnel to intercept the many millions

of dollars lost in cash-for-discounted-benefits schemes. And

we would hope that there is a strict warning to all who receive

this generous entitlement that any abuse similar to this cash-sale

scheme will cause the immediate curtailment of their LINK

benefits.

No. 11-2248 15

Hussein last asserts that his overall prison sentence is

unreasonable. In his view, the district court unfairly

penalized him for selling junk food instead of nutritious

items and was unduly harsh because of concern that some

of his patrons exchanged benefits for cash to buy drugs. He

also adds that the court ignored his arguments in mitiga-

tion.

Hussein’s within-range sentence is presumed reasonable,

Rita v. United States, 551 U.S. 338, 341 (2007); United States

v. Meschino, 643 F.3d 1025, 1030 (7th Cir. 2011), and he

bears the burden of rebutting that presumption, United

States v. Noel, 581 F.3d 490, 500 (7th Cir. 2009). Among the

reasons that influenced the choice of sentence, the district

court cited Hussein’s abuse of a taxpayer-funded program,

his continuation of the fraud after he knew he was under

investigation, the length of the scheme, and the number of

fraudulent exchanges involved. The court also noted

Hussein’s intelligence and his opportunities as a business-

man and property owner.

The sentencing court did, as Hussein asserts, criticize

him for operating stores “where people were provided

essentially nothing but calories.” But this criticism must be

read in context. See United States v. Nance, 611 F.3d 409, 417

(7th Cir. 2010); United States v. Hoke, 569 F.3d 718, 722 (7th

Cir. 2009). The court’s concern was not simply the food

selection at Hussein’s establishments but the fact that he

wasted an opportunity, handed to him by the government,

to serve the needs of a community with a real shortage of

grocery options. As we have noted, and as the district

judge recognized, Hussein and Bazian operated businesses

16 No. 11-2248

that were food stores in name only. A sentencing court

may consider the harm that society or a particular commu-

nity suffers from a crime. See United States v. Collins, 640

F.3d 265, 270 (7th Cir. 2011) (affirming sentence based

partly on harm to society caused by identity theft and

misuse of Social Security numbers); United States v. Brock,

433 F.3d 931, 935, 938 (7th Cir. 2006) (affirming sentence

based partly on defendant’s damage to his community by

possessing drugs and guns). That is all the court did here.

As for the judge’s comments about drug use, she never

embraced the government’s speculation about how

Hussein’s clients spent their ill-gotten cash and only

clarified her understanding of the prosecutor’s remarks.

And regarding Hussein’s arguments in mitigation,

the judge acknowledged Hussein’s medical condition and

was not required to discuss his commonplace contentions

about family circumstances, see United States v. Gary, 613

F.3d 706, 710 (7th Cir. 2010); United States v. Tahzib, 513 F.3d

692, 695 (7th Cir. 2008), and lack of criminal history, see

United States v. White, 582 F.3d 787, 798 (7th Cir. 2009);

United States v. Martinez, 520 F.3d 749, 753 (7th Cir. 2008).

Hussein has not rebutted the presumption that his within-

guidelines sentence is reasonable.

A FFIRMED.

12-13-11