United States v. Abu-Shawish, Mhammad ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-1459
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
MHAMMAD ABU-SHAWISH,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 03 CR 211—J.P. Stadtmueller, Judge.
____________
ARGUED SEPTEMBER 6, 2007—DECIDED NOVEMBER 1, 2007
____________
Before FLAUM, MANION, and KANNE, Circuit Judges.
FLAUM, Circuit Judge. Mhammad Abu-Shawish ap-
peals his conviction after a trial by jury. The jury found
Abu-Shawish guilty of federal program fraud in violation
of 18 U.S.C. § 666(a)(1)(A). He challenges the sufficiency
of the indictment and the sufficiency of the evidence on
the grounds that the government did not allege in the
indictment or prove at trial that he was an agent of the
organization that he defrauded, or that he defrauded the
organization for which he was an agent. For the reasons
stated herein, we vacate the conviction and remand the
case for further proceedings consistent with this opinion.
2 No. 06-1459
I. Background
Each year, the City of Milwaukee receives over twenty
million dollars of federal money from the United States
Department of Housing and Urban Development. The City
then makes the funds available to community groups
through a development block grant program. These groups
submit grant applications to the City sketching out their
plans to develop the community in a particular way. The
grant applications are reviewed by the block grant pro-
gram’s evaluation committee and city council representa-
tives, and once an application is accepted, the federal
funds are disbursed to the relevant community group. The
community group then uses the funds to fully research
and develop their community development proposal, and
in some cases begin effectuating the proposal.
This is precisely what Abu-Shawish, as founder and
executive director of Arabian Fest/American Festival, Inc.
(“Arabian Fest”), a Milwaukee-based non-profit community
organization, set out to do. Initially, Abu-Shawish ap-
proached Milwaukee Alderman Bob Donovan with the
idea of bringing businesses to Muskego Avenue, a com-
mercial strip near Arabian Fest headquarters. Following
Alderman Donovan’s advice, in April 2001, Abu-Shawish
sent a letter to the City of Milwaukee Community Block
Grant Administration Office on behalf of Arabian Fest
seeking a $100,000 grant to research and create a develop-
ment plan for Muskego Avenue.1 In June 2001, Juanita
Hawkins, who ran the block grant program, sent Abu-
Shawish a letter notifying him that the City had ap-
proved his request in the amount of a $75,000 grant.
1
In particular, his letter requested the funds in order to recruit
new businesses to open along Muskego Avenue, relocate other
businesses in that area, and facilitate and maintain a rela-
tionship between businesses and the neighborhood.
No. 06-1459 3
Over the next few months, Abu-Shawish claims to have
performed a number of tasks in order to further his
proposal, including supervising his staff, working on
crime reduction in the Muskego Avenue area, speaking
with local merchants, conducting traffic counts, and
constructing a database of Arabian Fest vendors to talk
about relocating to the Muskego Avenue area. Throughout
the project, he presented expense records to the City to
justify the receipt of funds, as well as an advance for
future expenses. The following table presents the dates
when federal funds were disbursed to Arabian Fest,2
the amounts disbursed, and (to the extent that the record
has established it) where the money was spent:
Date of Amount How funds
disbursement disbursed were spent3
January 16, 2002 $4,477.37 Record does not
comment
January 17, 2002 $31,707 Abu-Shawish
(advance) took $6,707 in
cash and used
the remainder to
pay Arabian Fest
operating
expenses (includ-
ing wages)
2
Abu-Shawish was the only signatory on the Arabian Fest
accounts.
3
Appellant’s brief indicates that Abu-Shawish used some of
the grant money to pay for new computers, but it does not
note which disbursement accounted for this expense.
4 No. 06-1459
March 5, 2002 $32,097 Abu-Shawish
transferred
$10,000 to a per-
sonal business
account, and
then took $6,000
in cash
May 9, 2002 $4,301.34 Record does not
comment
July 26, 2002 $2,416.87 Record does not
comment
A City of Milwaukee audit later showed that Abu-Shawish
accounted for the checks to cash and the transfer to the
personal bank account as wages for himself. On May 16,
2002, Abu-Shawish submitted Arabian Fest’s Muskego
Avenue Redevelopment Plan to Ms. Hawkins.
This case drew the attention of the authorities because
Arabian Fest’s redevelopment plan was substantially
plagiarized from a report submitted by Randy Roth,
another member of the Milwaukee community. Roth was
a consultant in Milwaukee who specialized in urban
development plans. In March 2001, Alderman Donovan
approached Roth and asked him to work on a redevelop-
ment plan for the Muskego Avenue corridor. The plan
was sponsored by Milwaukee Alliance, a neighborhood
group affiliated with Donovan. Because Donovan was
connected to Milwaukee Alliance, Roth was able to utilize
some of its employees to assist him with the project.
Two of those employees were cousins, Angela and Lisa
Sanfilippo. What Roth did not realize was that Donovan
also sent Angela and Lisa to assist Abu-Shawish as he
drew up his plan for Muskego Avenue. While Roth did not
have any formal business relations with Abu-Shawish,
Donovan privately instructed Angela to bring Abu-Shawish
the finished product from Roth.
No. 06-1459 5
The development plan that Abu-Shawish submitted to
the Milwaukee Community Development Block Grant
Division was essentially identical to the plan drawn up
by Roth. In fact, Arabian Fest’s plan was identical except
for the following minor differences: the cover was changed;
references to “Milwaukee Alliance” were replaced with
“Arabian Fest”; the font size was changed; and parts of
Roth’s plan were omitted.
Because the City of Milwaukee essentially paid money
for a report that Abu-Shawish never actually wrote, he
was charged on October 2, 2003 in a criminal complaint
alleging federal program fraud violations under 18 U.S.C.
§ 666(a)(1)(A). After the government severed and dis-
missed certain ancillary charges, the one remaining § 666
count was tried to a jury on June 27, 2005.4 On June 29,
2005, the jury returned a verdict of guilty. Abu-Shawish
was subsequently sentenced to three years’ imprison-
ment and $76,100 in fines.
II. Discussion
Abu-Shawish argues that the superseding indictment
did not properly charge him with a violation of 18 U.S.C.
§ 666(a)(1)(A). Under ordinary circumstances, the suffi-
ciency of an indictment presents a question of law, which
is reviewed de novo. United States v. Aldaco, 201 F.3d 979,
982 (7th Cir. 2000). However, in this case, the challenge
to the sufficiency of the indictment was not raised before
the district court. As a result, the challenge is reviewed
for plain error. United States v. Davis, 471 F. 3d 783, 790
4
Specifically, Count One of the Fourth Superseding Indictment-
A charged Abu-Shawish with fraudulently obtaining over $5,000
in federal grant funds on March 31, 2002.
6 No. 06-1459
(7th Cir. 2006). Plain error requires a finding (1) that
there is error, (2) that is plain, and (3) that affects sub-
stantial rights; the court may then exercise discretion to
correct such error if it seriously affects the fairness,
integrity, or public reputation of judicial proceedings.
United States v. Prude, 489 F.3d 873, 880 (7th Cir. 2007).
An indictment is legally valid if it: “(1) states all the
elements of the crime charged; (2) informs the defendant
of the nature of the charge, enabling the defendant to
prepare a defense; and (3) enables the defendant to plead
the judgment as a bar to later prosecution of the same
offense.” United States v. Allender, 62 F.3d 909, 914 (7th
Cir. 1995).
Abu-Shawish was charged with violating 18 U.S.C.
§ 666(a)(1)(A), which prohibits theft from organizations
receiving funds under federal assistance programs. The
statute provides as follows:
(a) Whoever, if the circumstance described in subsec-
tion (b) of this section exists—
(1) being an agent of an organization, or of a
State, local, or Indian tribal government, or
any agency thereof—
(A) embezzles, steals, obtains by fraud, or
otherwise without authority knowingly con-
verts to the use of any person other than the
rightful owner or intentionally misapplies,
property that—
(i) is valued at $5,000 or more, and
(ii) is owned by, or is under the care, cus-
tody, or control of such organization,
government, or agency; . . .
(b) The circumstance referred to in subsection (a) of
this section is that the organization, government,
No. 06-1459 7
or agency receives, in any one year period, benefits
in excess of $10,000 under a Federal program
involving a grant, contract, subsidy, loan, guaran-
tee, insurance, or other form of Federal assistance.
18 U.S.C. § 666(a), (b).
The government claims that to prove that an individual
has violated this section of the criminal code, it merely
has to demonstrate that: (1) the defendant was an agent
of an organization; (2) in a one-year period, the organiza-
tion received in excess of $10,000 in federal funds under
the grants, contracts, subsidies, loans, or some other
form of federal assistance; (3) the defendant embezzled,
stole, obtained by fraud, converted to another, or intention-
ally misapplied money or property; (4) the money or
property was under the care, custody or control of the
organization; and (5) the money or property had a value
of $5,000 or more. Consistent with this view of the statute,
the Fourth Superseding Indictment-A charges as follows:
2. During the 12-month period between on or about
June 1, 2001, and on or about May 31, 2002,
Arabian Fest received in excess of $10,000 under
a federal program involving grants. The Executive
Director of Arabian Fest, a non-profit organization,
was Mhammad Aziz Abu Shawish. . .
3. The federal grant funds were Community Develop-
ment Block Grant (CDBG) funds from the United
States Department of Housing and Urban Develop-
ment (HUD) which were administered through the
City of Milwaukee’s Community Development
Block Grant Administration Office (CDBG-City
administered funds).
4. On or about June 19, 2001, CDBG-City adminis-
tered funds were awarded to Arabian Fest in an
amount up to $75,000 in order for that organiza-
8 No. 06-1459
tion to “[d]evelop a business plan to recruit new
businesses along Muskego Avenue” in Milwaukee.
5. On or about May 16, 2002, Mhammad
Abu-Shawish submitted to the City of Milwaukee
a study entitled, “Muskego Avenue Re-develop-
ment Plan.” The study contained language stat-
ing that it was “prepared by Arabian Fest” and
“Funded by Community Block Grant Administra-
tion.” . . .
6. In fact, the submitted plan was not formulated
by Arabian Fest or any other person acting at
the direction or behest of that organization.
7. The submitted plan actually had been completed
in December 2001 by an individual unrelated to
Arabian Fest (hereinafter the “Original Plan”). The
Original Plan was funded by an organization
unrelated to Arabian Fest. The cost of the Original
Plan was $25,000.
8. The submitted report was an identical copy of the
Original Plan, except there were cosmetic changes,
including the title, author, print font and some
parts were excluded.
9. As a result, $75,000 in Federal block grant funds
were spent by the CDBG-City administered fund
on a study that had already been completed and
paid for by another organization.
10. As part of that funding, on or about March 31,
2002, in the State and Eastern District of Wiscon-
sin, Mhammad Abu Shawish submitted documen-
tation to CDBG-City administered fund to OB-
TAIN more than $30,000 as reimbursement for
alleged expenses associated with the study, when
as the defendant well knew, no $30,000 in ex-
penses had been incurred by Arabian Fest because
No. 06-1459 9
Arabian Fest had not done the study. By doing so,
Mhammad Abu Shawish obtained use of these
funds through fraud.
Fourth Superseding Indictment-A.
The government argues that Abu-Shawish was properly
charged under the statute because he was an agent of
an organization that received federal funding, and he
obtained federal funds in a fraudulent manner. Abu-
Shawish’s response, in essence, is that the indictment is
insufficient because it does not charge that he was an
agent of the organization he defrauded. In other words,
he contends that the indictment alleges that he de-
frauded the City of Milwaukee, though he was not an
agent of the City of Milwaukee. Indeed, the parties agree
that Abu-Shawish was an agent of Arabian Fest within
the meaning of the statute. The government does not try
to argue that Abu-Shawish was an agent of the City of
Milwaukee. Therefore, we must ascertain (1) whether the
18 U.S.C. § 666(a)(1)(A) requires that the individual
charged serve as an agent for the organization that he
defrauded, and if that is the case, then (2) whether the
indictment properly alleges that Abu-Shawish fraudulently
obtained funds from Arabian Fest.
As in all statutory construction cases, the first step is
to determine whether the language at issue has a plain
and unambiguous meaning with regard to the particular
dispute in the case; and the inquiry ceases if the language
is unambiguous and the statutory scheme is coherent
and consistent. Robinson v. Shell Oil Co., 519 U.S. 337,
340 (1997).
The plain language of the statute at issue here seems
to require that the individual act as an agent on behalf
of the organization that he or she defrauded for the
purposes of obtaining funds. The statute begins by re-
stricting the criminal activity to an individual who is
10 No. 06-1459
an agent of “an organization, or of a state, local, or Indian
tribal government, or any agency thereof.” 18 U.S.C.
§ 666(a)(1). The statute then defines the criminal activity
as embezzling, stealing, obtaining by fraud, “or otherwise
without authority knowingly convert[ing] to the use of
any person other than the rightful owner or intentionally
misappl[ying], property.” 18 U.S.C. § 666(a)(1)(A). The
following two paragraphs are subordinate to this sec-
tion and place two requirements on the fraudulently
obtained property. The first limitation is that this property
is “valued at $5,000 or more.” 18 U.S.C. § 666(a)(1)(A)(i).
The second limitation is crucial, in that it requires that
the property is “owned by, or is under the care, custody,
or control of such organization, government, or
agency. . . .” 18 U.S.C. § 666(a)(1)(A)(ii). The phrase “such
organization” here clearly refers back to section 1 of the
statute, which limits the criminal liability to an agent of
an organization. In other words, the agent who is poten-
tially criminally liable must have fraudulently5 obtained
property that is under the care, custody or control of the
same organization for which he is an agent. The final
requirement, which is not an issue in this case, is that
the organization receive “in excess of $10,000 under a
Federal program involving a grant, contract, subsidy, loan,
guarantee, insurance, or other form of Federal assistance”
in any one year period. 18 U.S.C. § 666(b). In short, the
5
We use the words “fraud,” “fraudulently,” and “stole” inter-
changeably to refer to the section of the statute that requires
that the agent embezzle, steal, fraudulently obtain, knowingly
convert or intentionally misapply property. 18 U.S.C.
§ 666(a)(1)(A). To be sure, the government only argues that
the property was obtained through fraud, not that it was, for
instance, intentionally misapplied. Moreover, the indictment
itself does not use any of the statute’s operative terms other
than fraud.
No. 06-1459 11
plain meaning of the statute suggests that there must
be an individual who acts as an agent of an organization,
the individual must have unlawfully obtained funds
from this organization, and the organization must receive
over $10,000 in federal funds in any one year period.
The government counters by making a strained textual
argument. It contends that the statute merely requires
that the funds are under the care, custody, and control of
the relevant organization (i.e., Arabian Fest). The corollary
to this idea is that this organization does not also have
to be the victim of the fraud. In other words, the govern-
ment seems to suggest that an individual can be held
criminally liable under this statute if he obtains funds
by defrauding some other theoretical organization as
long as he is an agent of an organization that then later
has care, custody, and control of these funds.
This argument fails for four reasons. First, the very
fact that the statute requires an agency relationship
suggests that there is something germane about this
position of trust. To be sure, the statute contemplates a
situation where an insider in an organization that re-
ceives federal funds has fraudulently siphoned away
funds from this organization. The government’s reading
would not even require the agent to actually take any
money away from his organization for personal use.
Second, the government’s interpretation would require
a temporal leap of logic. In particular, the statute punishes
an agent who fraudulently obtains property that is owned
by their organization. There is no change of tense in the
statute: only one time frame is contemplated. The govern-
ment’s reading, however, would also punish an agent
who fraudulently obtains property that is then subse-
quently owned by their organization (i.e., the events that
transpired in the instant case). We see no reason to
interlineate these words or an additional time frame into
the plain text of the statute. Third, the statute only
12 No. 06-1459
mentions one organization, which implies that all three
relevant attributes attach to the organization: it has
custody of the funds, its agent committed the fraud, and
it is victimized by the fraud. There is no mention of a
second organization that is, instead, victimized by the
fraud. Fourth, the government’s reading of the statute
would lead to absurd results. Specifically, on its view, an
agent of an organization would be held criminally liable
under this provision if she fraudulently obtained funds
from any private organization or individual not in any
way affiliated with the government so long as these funds
were subsequently in the custody of her organization, and
her organization incidentally (and independently) also
receives $10,000 in federal funds that year. While Con-
gress did indeed enact § 666 in order to “protect the
integrity of the vast sums of money distributed through
federal programs,” S. REP. NO. 98-225 at 370 (1983), as
reprinted in 1984 U.S.C.C.A.N. 3182, 3511, surely Con-
gress did not intend to criminalize, with this provision,
an act that does not implicate the integrity of federal
funds (either directly or indirectly) in any way.6
6
We are not holding that the government’s interpretation of
the statute would render it unconstitutional, as this Court and
the Supreme Court have both ruled that § 666 does not require,
from a constitutional perspective, a direct nexus between the
federal funds and the prohibited act (e.g., fraud). Sabri v. United
States, 541 U.S. 600, 605 (2004); United States v. Spano, 401 F.3d
837, 840-41 (7th Cir. 2005). The government is not required to
prove, in the context of this provision, that federal funds were
actually affected by the agent’s actions. Rather, we have con-
cluded here that the text of the statute, along with its purpose,
does not compel a conclusion that Congress intended to
criminalize (with this provision) the hypothetical situation
delineated above, which is precisely what would be allowed
under the government’s reading.
No. 06-1459 13
Significantly, while neither this Court nor its sister
circuits have dealt directly with this specific interpretive
issue, prior commentary on § 666(a)(1)(A) suggests a
reading that comports with our interpretation. See, e.g.,
United States v. Cruzado-Laureano, 404 F.3d 470, 483-84
(1st Cir. 2005) (“[T]he government had to prove three
elements beyond a reasonable doubt: (i) that Cruzado was
‘an agent of an organization, or of a State, local, or Indian
tribal government, or any agency thereof ’; (ii) that Cruzado
embezzled, stole, obtained by fraud, or converted or
intentionally misapplied property ‘valued at $5,000 or
more’ from ‘such organization, government, or agency;’ and
(iii) that such ‘organization, government, or agency
receives, in any one year period [federal funds] in excess
of $10,000.’ ”) (emphasis added); United States v. Pember-
ton, 121 F.3d 1157, 1169 (8th Cir. 1997) (affirming de-
fendant’s conviction by rejecting argument that he was
not an agent of the tribe from which he stole money);
United States v. Delano, 55 F.3d 720, 729-30 (2d Cir.
1995) (affirming defendant’s conviction by noting that
he was not only an agent of the parks department but
also an agent of the city, thereby making him an agent of
an organization from which he stole funds); United States
v. Weaver, 220 Fed.Appx. 88, 95 (3d Cir. 2007) (“ ‘So
basically, what is required . . . [is that] the defendant
whose case you are considering was an agent of that
[federally funded] organization and that that person
obtained money from the organization by fraud.’ ”) (empha-
sis added) (quoting jury instructions from the lower
court). Indeed, there is not a single case that directly
supports the reading that the government has proffered
here.
The government argues, in the alternative, that even if
the statute requires that the individual act as an agent
for the organization that he defrauded, the indictment
alleges enough facts to show that Arabian Fest was a
14 No. 06-1459
target of the fraud. In order to support this contention,
the government maintains that Arabian Fest, not Abu-
Shawish individually, was to receive the benefit of the
federal grant from the City of Milwaukee. While this
is true, it misses the point. The indictment simply
alleges that Abu-Shawish fraudulently obtained money
from the City of Milwaukee Community Block Grant
Administration Office. The indictment does not allege that,
as the Executive Director of Arabian Fest, Abu-Shawish
did not have the authority to pay himself and others and
pay other Arabian Fest expenses from Arabian Fest
income. An indictment is considered deficient if it does
not provide enough factual details to “sufficiently apprise
the defendant of what he must be prepared to meet.”
Russell v. United States, 369 U.S. 749, 763 (1962). Here,
there is not a single clause in the indictment that in-
dicates that Abu-Shawish harmed Arabian Fest in any
way. More importantly, there were also no allegations that
he obtained the money by deceiving Arabian Fest.7 Indeed,
in order to have properly defended himself against the
crime charged, Abu-Shawish needed to be on notice that
he was going to have to show that he did not defraud his
own company.
Without question, the indictment properly alleged and
the evidence was sufficient to show that Abu-Shawish
defrauded the City of Milwaukee. However, he was not
an agent of the City of Milwaukee, and so he was not
properly charged under 18 U.S.C. § 666(a)(1)(A). Neverthe-
less, the federal government still has broad power to
protect the integrity of federal funds through statutes
7
There was nothing in the indictment that suggested that
Abu-Shawish hid facts from or lied to any stakeholders when he
paid himself or transferred funds. In fact, at the sentencing
hearing, the trial judge even noted that he felt that Abu-Shawish
committed the fraud in order to keep Arabian Fest going.
No. 06-1459 15
that criminalize mail and wire fraud. It is likely that
Abu-Shawish could have been charged with mail or wire
fraud, since he used both the mail and telephone as a part
of his fraudulent scheme. It is not for this Court to re-
flect on why the government chose to charge him with a
violation of § 666(a)(1)(A) as opposed to mail fraud
and/or wire fraud. At bottom, Abu-Shawish defrauded the
City of Milwaukee, but the government is still required
to charge him with the appropriate crime.
III. Conclusion
Because the indictment did not allege that Abu-Shawish
defrauded the organization for which he served as an
agent, we VACATE the conviction and REMAND the case
for further proceedings consistent with this opinion.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—11-1-07