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USA v. NAEIL HUSSEIN. No. 11-2248.

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 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 restaurant.

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. 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 evidence that many of the LINK cardholders who sold their benefits to Hussein and Bazian did so repeatedly.

Yet simply accepting 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). 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 inference 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). 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 redemptions, 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 States v. Diekemper, 604 F.3d 345, 354 (7th Cir. 2010) (bankruptcy 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.

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)