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United States v. Ali

August 27, 2010

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
MIR ALI, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 02-CR-825-1-Wayne R. Andersen, Judge.

The opinion of the court was delivered by: Rovner, Circuit Judge.

ARGUED DECEMBER 8, 2009

Before EASTERBROOK, Chief Judge, and ROVNER and TINDER, Circuit Judges.

Mir Ali, and his business partner, Mohammad Shah, ran a grocery store and a food stamp scam that defrauded the United States Department of Agriculture ("USDA") out of several million dollars. They allowed food stamp recipients to exchange food stamps for cash instead of food, a practice prohibited by the food stamp program, see 7 U.S.C. § 2024, and pocketed a portion of the proceeds. Ali pleaded guilty to two counts of wire fraud, see 18 U.S.C. § 1343, and was sentenced to 57 months' imprisonment. On appeal, he challenges his plea, his sentence, and the district court's orders of $4.9 million in restitution and $2.56 million in forfeiture. We affirm the conviction and sentence but remand with instructions to amend the restitution award.

I.

Congress created the food stamp program to allow low-income households to receive a greater share of the nation's food supply. 7 U.S.C. § 2011; see Affum v. United States, 566 F.3d 1150, 1154 (D.C. Cir. 2009). Stores authorized to participate in the program may accept food stamps instead of cash for authorized food items and then redeem those benefits with the government at face value. See 7 U.S.C. § 2013(a). Illinois uses an electronic card system known as LINK, similar to a debit card, to process purchases with food stamps. See id. § 2016; United States v. Haddad, 462 F.3d 783, 786 (7th Cir. 2006); United States v. Alhalabi, 443 F.3d 605, 609 (7th Cir. 2006). The LINK cards of qualified recipients are credited once a month with benefits. Haddad, 462 F.3d at 786. When the recipient uses the LINK card at a participating store to obtain food, the store deducts the corresponding benefits electronically with a specialized point-of-sale machine and submits its total food stamp sales to the USDA for reimbursement. Id.

Mir Ali, along with Mohammad Shah, owned and operated Star Foods, Inc., a small grocery store in Chicago. In 1996, Ali applied for Star Foods to participate in the food stamp program. On his application he estimated that Star Foods's annual food stamp-eligible sales would be $150,000 per year. He came to the attention of law enforcement after Star Foods's redemptions far exceeded this estimate. Star Foods redeemed benefits for over $640,000 in 1997. The next year, in which Star Foods redeemed over $910,000 in benefits, two under-cover agents posed as food stamp recipients looking to exchange benefits for cash. They exchanged $231 and $230 in benefits for $150 in cash each. Star Foods's redemptions continued to escalate, amounting to over $964,000 in 1999, over $1 million in 2000, over $1.5 million in 2001, and over $1.8 million in 2002.

In 2005 Ali was charged with two counts of wire fraud stemming from the agents' undercover purchases. See 18 U.S.C. § 1343. (Shah was likewise indicted, but died shortly thereafter.) In the indictment, the government specified that Ali and Shah knowingly devised a scheme to defraud the USDA by exchanging LINK card benefits for cash. The government also sought forfeiture of almost $4.9 million acquired from the scheme, including a residence and two bank accounts. See id. § 981(a)(c); 28 U.S.C. § 2461. Ali pleaded guilty to both counts without a plea agreement, but sought a bench trial on the forfeiture allegation.

At the plea hearing, the government described each of the charges in the indictment and summarized the evidence in support. After prompting from the court, the government explained that each count carried a potential penalty of 20 years' imprisonment, a $250,000 fine, and 3-5 years' supervised release. The total potential imprisonment, the government continued, would be 40 years because the sentences could run consecutively. Ali stated he understood that those were his potential penalties and said that he was pleading guilty because he committed the crimes. His counsel then asked whether the government would object to a 3-level adjustment for accepting responsibility. See U.S.S.G. § 3E1.1. The government stated it would not provided that Ali was eligible. The court accepted the plea.

The district court then held a bench trial on the forfeiture allegation. The government stated it would use the forfeiture proceeding to prove both the forfeiture amount and, for purposes of sentencing and restitution, the loss to the USDA. The government began by asserting that Ali should forfeit $4,950,992.80, the alleged proceeds of his wire fraud scheme, and pay restitution in a like amount to the USDA. Ali countered that the loss was only $461, the sum of the two under-cover sales. In the course of the forfeiture hearing, the government reduced the forfeiture amount to $2,567,587.05 because the statute allowing for forfeiture had not become effective until August 2000, two-and-a-half years after Ali's scheme began. The government also revised the loss amount for restitution to $4,290,000.

The principal witness at the forfeiture proceeding was Mireille Swain, a special agent with the USDA, who testified to the existence and extent of the fraud. She began by explaining that Star Foods had not bought sufficient inventory to justify its redemptions. She com-piled a comprehensive list of Star Foods's monthly redemptions since 1997 to August 2002 and noted that the monthly redemptions significantly exceeded Ali's estimate every year. And, Star Foods's redemptions also exceeded the redemptions of even much larger local stores. Based on Star Foods's bank accounts, it had deposited $7,159,838 during the scheme, with more than 98% of these deposits consisting of electronic food stamp redemptions.

She then compared Star Foods's sizable deposits to its purchased food and non-liquor stock, which she assumed were all food stamp-eligible items. Relying exclusively on Ali's own business records, Swain determined that, although Star Foods deposited over $7 million, Star Foods wrote checks totaling only $1,829,290.39 to buy food and non-liquor stock. Some purchases likely included non-food stock, but because she assumed that all purchases were food stamp-eligible purchases, this increased the amount of sales Ali could justify. So, any discrepancy favored Ali. She also concluded that Star Foods spent only $1.8 million on food and non-liquor stock because she could not find any evidence that Star Foods made purchases in any other form, i.e., with cash. To this end, she reviewed sixteen months' of bank reconciliations that categorized purchases, but no category accounted for purchases made with cash, and each had a reference number that Swain determined corresponded to a check number. She also spot-checked the daily expense folders seized from Ali's business and similarly found that each invoice had a corresponding check. Thus, she concluded that Ali spent $1,829,290.39 on food and non-liquor stock.

Swain then estimated that the retail value of the food and non-liquor stock was approximately $2.7 million. To arrive at this figure, she applied a 50% markup (what Swain estimated was the general retail markup for grocery items) to the amount Star Foods spent on food and non-liquor inventory. She then assumed that all these sales were made with food stamps (another assumption that favored Ali). Thus, she concluded, Ali could justify $2.7 million in food stamp redemptions. So Swain deducted this amount from the total food stamps redeemed (approximately $7 million) and opined that $4.29 million was not justified by Ali's food and non-liquor stock purchases. This unjustified amount, she concluded, was the total loss to the USDA and the proceeds of Ali's criminal scheme.

Finally, to calculate the forfeiture amount, Swain considered only Star Foods's redemptions and sales after the forfeiture law was effective. She found that, after the law's effective date, Ali redeemed $3,822,432.97 in food stamps but had only $836,563.35 in food and non-liquor stock purchases. After applying the 50% markup ($1,254,845.02), Swain concluded that approximately $2.56 million was not justified by Ali's ...


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