In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 02-1702, 02-1726 & 02-1925

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

Cross-Appellant,

v.

JOHN SERPICO and GILBERT CATALDO,

Defendants-Appellants,

Cross-Appellees.

____________

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 99 CR 570—Blanche M. Manning, Judge.

____________

ARGUED OCTOBER 31, 2002—DECIDED FEBRUARY 20, 2003

____________

Before RIPPLE, MANION, and EVANS, Circuit Judges.

EVANS, Circuit Judge. For 12 years, John Serpico and

Maria Busillo held and abused various influential positions

with the Central States Joint Board (“CSJB”), a labor organization that provides support to its member unions.

Among other responsibilities, Serpico and Busillo controlled the management of the unions’ money. The pair,

along with longtime friend and business associate Gilbert

“Bud” Cataldo, collaborated on three schemes involving

the misappropriation of the unions’ funds. Two of those
2 Nos. 02-1702, 02-1726 & 02-1925

schemes are the focus of this appeal by Serpico and

Cataldo (Busillo has not appealed her conviction).

In their “loans-for-deposits” scheme, Serpico and Busillo

deposited large sums of union money in various banks. In

exchange, the two received overly generous terms and

conditions on personal loans totaling more than $5 million.

In the more complicated hotel loan kickback scheme, several groups entered into the 51 Associates Limited Partnership, which planned to construct a hotel. The partnership was unable to obtain financing for the construction of

the building without first securing a commitment for a

mortgage loan that would guarantee repayment of the

construction loan after the hotel was built. Serpico used

union funds to make a mortgage loan to the developers,

after which Mid-City Bank agreed to make the construction loan. In exchange for Serpico’s help in securing the

loan, 51 Associates paid $333,850 to Cataldo’s corporation, Taylor West & Company, for “consulting services” that

Cataldo never actually performed. Cataldo then kicked

back $25,000 to Serpico by paying Serpico’s share of a

$50,000 investment into an unrelated business project

(the Studio Network project) in which the two were partners.

Serpico, Busillo, and Cataldo were tried on charges of

racketeering, mail fraud, and bank fraud. At the close of

the evidence, the court granted motions by Serpico and

Busillo for acquittal on the racketeering and bank fraud

counts. The jury convicted Serpico and Busillo on mail fraud

charges relating to the loans-for-deposits scheme and

Serpico and Cataldo on mail fraud charges for the hotel

loan kickback scheme.

At sentencing, the district court determined that Serpico

and Cataldo were each responsible for a loss of $333,850,

the amount paid to Cataldo, for the hotel loan kickback

scheme. For the loans-for-deposits scheme, the court
Nos. 02-1702, 02-1726 & 02-1925 3

found the damage to the unions to be equal to the additional amount of interest the union assets would have

earned had Serpico purchased CDs at banks offering the

highest interest rates instead of those offering him special

deals on his personal loans. The court totaled loans from

Capitol Bank as well as six others, estimating the loss to

be between $30,000 and $70,000. The court thus increased Serpico’s base offense level of 6 by 9 levels, plus 2

levels for more than minimal planning and 2 levels for

abuse of trust (19 total). Serpico and Cataldo were sentenced to 30 and 21 months in prison, respectively.

Serpico and Cataldo (collectively “Serpico” as we go

forward) appeal, challenging the verdicts and the application of the sentencing guidelines on a number of grounds.

In its cross-appeal, the government also contests the application of the sentencing guidelines.

First, Serpico argues that his convictions should be

overturned because his schemes did not “affect” a financial

institution. The 5-year statute of limitations for mail and

wire fraud offenses under 18 U.S.C. § 3282 is extended

to 10 years “if the offense affects a financial institution,”

18 U.S.C. § 3293(2), and Serpico could not have been

prosecuted without that extension. Serpico claims that an

offense only “affects a financial institution” if the offense

has a direct negative impact on the institution. The district court instructed the jury that the schemes affected

the banks if they “exposed the financial institution[s] to

a new or increased risk of loss. A financial institution

need not have actually suffered a loss in order to have

been affected by the scheme.”

Although Serpico agreed to the jury instruction, he now

points to United States v. Agne, 214 F.3d 47, 53 (1st Cir.

2000) and United States v. Ubakanma, 215 F.3d 421, 426

(4th Cir. 2000), to support his claim that the financial

institution must suffer an actual loss. In Agne, however, the
4 Nos. 02-1702, 02-1726 & 02-1925

court found that the bank “experienced no realistic prospect of loss,” so it did not have to reach the question of

whether the bank must suffer an actual loss. Agne, 214

F.3d at 53. Similarly, Ubakanma simply held that “a wire

fraud offense under section 1343 ‘affected’ a financial

institution only if the institution itself were victimized

by the fraud, as opposed to the scheme’s mere utilization

of the financial institution in the transfer of funds.”

Ubakanma, 215 F.3d at 426. Neither side here argues

that “mere utilization” is sufficient; the question is whether an increased risk of loss is enough, even if the institution never suffers an actual loss.

Several courts, including this one and the Fourth Circuit,

which produced Ubakanma, have concluded that an increased risk of loss is sufficient in similar contexts. See, e.g.,

United States v. Longfellow, 43 F.3d 318, 324 (7th Cir.

1994) (quoting United States v. Hord, 6 F.3d 276, 282 (5th

Cir. 1993) (“risk of loss, not just loss itself, supports conviction” for bank fraud)); United States v. Colton, 231 F.3d

890, 907 (4th Cir. 2000); see also Pattern Criminal Federal

Jury Instructions for the Seventh Circuit (1990), p. 217

(The mail interstate carrier wire fraud statute “can be

violated whether or not there is any [loss or damage to

the victim of the crime] [or] [gain to the defendant].”).

More importantly, the whole purpose of § 3293(2) is to

protect financial institutions, a goal it tries to accomplish

in large part by deterring would-be criminals from including financial institutions in their schemes. Just as society

punishes someone who recklessly fires a gun, whether or

not he hits anyone, protection for financial institutions is

much more effective if there’s a cost to putting those

institutions at risk, whether or not there is actual harm.

Accordingly, we find no error in the district court’s jury

instruction.

Serpico next argues that, even if the district court

correctly interpreted § 3292(2), his schemes did not “affect”
Nos. 02-1702, 02-1726 & 02-1925 5

a financial institution because they did not create increased risks for the banks involved in the schemes.

Essentially, Serpico claims that the banks in both schemes

were willing participants who would not have chosen to

participate unless it was in their best interests (that is,

factoring in the risks, they expected to make money on

the deals). But the mere fact that participation in a

scheme is in a bank’s best interest does not necessarily

mean that it is not exposed to additional risks and is not

“affected,” as shown clearly by the various banks’ dealings

with Serpico.

For example, the hotel loan kickback scheme affected

Mid-City even though Mid-City believed it would make

money on the deal. Mid-City made a $6.5 million construction loan, one it obviously would not have made

if it believed the risks associated with the loan outweighed the expected payoff. But the loan, as all loans do,

did carry some risk. Since Mid-City did not want to be

a long-term real estate lender, it agreed to the loan only

after Serpico misappropriated Midwest Pension Plan

(“MPP”) funds in making the MPP’s $6.5 million end-mortgage loan (which meant that, if all went well, Mid-City

would quickly be repaid). Therefore, Mid-City never would

have been exposed to the risks of its loan absent Serpico’s

scheme because it never would have made the loan.

Serpico responds that MPP’s $6.5 million essentially

guaranteed the loan, so there was no risk to Mid-City.

But, under the terms of the loan, if the hotel was not

completed on time and under budget, the money MPP put

up would be returned to it. That would leave Mid-City

with a risky long-term loan it didn’t want. On top of

that, the kickback scheme increased the chances that the

project would run into trouble. Certainly a construction

project is more likely to be delayed when those running

it and putting up the money for it are doing so illegally,
6 Nos. 02-1702, 02-1726 & 02-1925

making them subject to the disruption of investigation

and arrest at any time.

The loans-for-deposits scheme shows even more dramatically that a bank can take on higher risk while acting in

what it believes to be its own best interests. Banks, including Capitol Bank (which no longer exists as a result of

punishments it received after pleading guilty to conspiring with Serpico and Busillo to defraud the CSJB entities), decided the benefits from the deposits made it

worth the risk of loss resulting from the generous terms

and conditions of the loans it gave Serpico. But the fact

remained that the bank made risky loans at low interest rates that it never would have made absent the

scheme.

In fact, at trial, Serpico’s counsel told the court that “if

the defendants were convicted of a loans-for-deposits

scheme, that conduct in and of itself would mean that they

affected a financial institution” and “I don’t know I could

conceivably argue that the particular scheme did not affect a financial institution.” He now tries two arguments.

In addition to arguing that the bank was acting in its

own best interest, Serpico claims that a financial institution is not “affected” if it is an active perpetrator in the

offense. We find that argument unpersuasive. It is not

supported by Ubakanma, as Serpico claims, and we find

it hard to understand how a bank that was put out of

business as a direct result of the scheme was not “affected,”

even if it played an active part in the scheme.

Next, Serpico argues that he was prejudiced by the

admission of evidence relating to various charges on

which the district court acquitted him before the case

went to the jury. In United States v. Holzer, 840 F.2d 1343,

1349 (7th Cir. 1988), we addressed almost this very issue:

When, as is often the case (it was here), the jury acquits

a defendant of some counts of a multi-count indictment, the defendant is not entitled to a new trial on
Nos. 02-1702, 02-1726 & 02-1925 7

the counts of which he was convicted, on the theory

that the conviction was tainted by evidence, which the

jury heard, relating to the counts on which it acquitted. . . . No rule of evidence is violated by the admission of evidence concerning a crime of which the defendant is acquitted, provided the crime was properly

joined to the crime for which he was convicted and

the crimes did not have to be severed for purposes

of trial. It makes no difference, moreover, whether the

jury acquits on some counts or the trial or reviewing

court sets aside the conviction.

Serpico notes that his case is different in that the admitted evidence here concerned claims that the court

dismissed before they reached the jury. Still, the Holzer

reasoning applies. No rule of evidence was violated, and

the district court did not abuse its discretion in failing to

award a new trial to Serpico.

We also reject Serpico’s claims that his conviction should

be overturned or he is entitled to a new trial because

there was not sufficient evidence to convict him and that

the record does not permit a confident conclusion that

Serpico is guilty beyond a reasonable doubt. Given the

evidence, the jury reasonably concluded that the $333,850

payment to Cataldo was made in exchange for the loan from

Serpico and that some of that $333,850 trickled down to

Serpico.

Similarly, we reject Cataldo’s claim that the district

court abused its discretion in denying his severance motion. To succeed, Cataldo must show that he was “unable

to obtain a fair trial, not merely that a separate trial

would have offered [him] a better chance of acquittal.”

United States v. Bruce, 109 F.3d 323, 327 (7th Cir. 1997).

Cataldo claims he should have been tried separately

because there was a gross disparity in the evidence presented against him and his co-defendants. But a “simple

‘disparity in the evidence’ will not suffice to support a
8 Nos. 02-1702, 02-1726 & 02-1925

motion for severance,” United States v. Caliendo, 910 F.2d

429, 438 (7th Cir. 1990). Moreover, the trial court instructed the jury to consider the evidence against each

defendant individually, and juries are presumed to be

capable of following such limiting instructions. United

States v. Williams, 858 F.2d 1218, 1225 (7th Cir. 1988).

Because there is no reason the jury here could not follow that instruction, the district court did not abuse its

discretion in denying Cataldo’s motion.

Finally, both Serpico and the government challenge the

district court’s application of the sentencing guidelines.

Serpico challenges the calculation of the loss from both

schemes. With regards to the hotel loan kickback scheme,

Serpico claims that the union entities suffered no loss

because the loan was repaid (the district court found the

loss attributable to both defendants to be $333,850, the

amount paid to Cataldo). But Serpico’s theory fails to

consider the fact that, although none of the $6.5 million

was lost, more money could have been earned. Obviously,

the 51 Associates partnership was willing to pay (and did

pay) an extra $333,850 in order to secure the loan. That

money could have gone to the union entities instead of

Cataldo if Serpico had been acting in the entities’ best

interests instead of his own. See generally United States

v. Briscoe, 65 F.3d 576, 589 (7th Cir. 1995) (kickbacks

“represent money that should have gone to the Union” and,

as such, were properly included in the loss calculation).

We also reject Serpico’s alternative argument that

he (individually, as opposed to with Cataldo) should only

be accountable for the $25,000 that Cataldo kicked back

to him. Serpico and Cataldo are each accountable for

“all reasonably foreseeable acts and omissions of others

in furtherance of the jointly undertaken criminal activity.” USSG §1B1.3(a)(1)(B). Since Serpico knew money

was going to be paid back to Cataldo for work he never

did, the district court correctly held him responsible for

the full $333,850 loss.
Nos. 02-1702, 02-1726 & 02-1925 9

Serpico also argues that, in computing the losses from

the loans-for-deposits scheme, the district court should

not have included losses arising from CD purchases from

banks other than Capitol because the court did not have

sufficient evidence to support a conclusion that the

scheme extended to those banks. But the 12-year pattern

of union deposits into banks from which Serpico simultaneously sought personal loans, combined with documents

from Gladstone-Norwood Bank and Exchange Bank suggesting that loans were approved in order to secure

union deposits, presented sufficient evidence.

In its cross-appeal, the government first claims the

district court applied the wrong offense guideline. The

district court calculated the defendants’ sentences under

§2F1.1 (the fraud guideline), but the government argues

it should have applied §2E5.1 (the benefit plan bribery

guideline) during sentencing. We review the district

court’s selection of the applicable guideline section de novo.

United States v. Dion, 32 F.3d 1147, 1148 (7th Cir. 1994).

Clearly, the government wants it both ways; having

chosen to prosecute Serpico under the mail fraud statute,

it wants him sentenced based on bribery. As unjust as

this practice might seem in a case like this (Serpico essentially would be sentenced for a crime, bribery, he

could not have been charged with because the statute of

limitations had run), the guidelines not only allow but

even encourage this scheme, which someone could argue

is a little like an old bait-and-switch. Under §1B1.2(a),

however, the district court is instructed to “[d]etermine

the offense guideline section in Chapter Two (Offense

Conduct) applicable to the offense of conviction (i.e., the

offense conduct charged in the count of the indictment

or information of which the defendant was convicted).”

USSG §1B1.2(a) (1990). The commentary to that section

elaborates: “When a particular statute proscribes a variety

of conduct that might constitute the subject of different
10 Nos. 02-1702, 02-1726 & 02-1925

offense guidelines, the court will determine which guideline section applies based upon the nature of the offense

conduct charged in the count of which the defendant was

convicted.” §1B1.2, comment. (n.1). In other words, as in

United States v. Hauptman, 111 F.3d 48 (7th Cir. 1997), the

sentencing judge should endeavor to locate the “essence”

of the defendant’s conduct, not merely the name attached

to the statute violated.

Therefore, §1B1.2(a) encourages the district court to

find an appropriate guideline section to fit the conduct

(not just the charge). Section 2F1.1 of the 1990 guidelines,

under which Serpico was convicted and sentenced, notes:

[T]he mail or wire fraud statutes, or other relatively broad statutes, are used primarily as jurisdictional

bases for the prosecution of other offenses. . . . Where

the indictment or information setting forth the

count of conviction (or a stipulation as described in

§1B1.2(a)) establishes an offense more aptly covered

by another guideline, apply that guideline rather than

§2F1.1.

§2F1.1, comment. (n.13).

The indictment charged that Serpico “sought and received

a substantial personal benefit and kickback in exchange

for influencing” the MPP to provide the $6.5 million loan,

which is closer to bribery than mail fraud (in §2E5.1, a

“bribe” is “the offer or acceptance of an unlawful payment with the specific understanding that it will corruptly affect an official action of the recipient.” §2E5.1,

comment. (n.1)). Similarly, the loans-for-deposits scheme

was basic bribery, with Serpico promising union deposits

to the banks in exchange for favorable personal loans.

Therefore, the district court should have sentenced Serpico

under §2E5.1.

Finally, the government argues that the district

court erred by failing to consider the approximately
Nos. 02-1702, 02-1726 & 02-1925 11

$475,000 that Serpico derived from the loans-for-deposits

scheme through his investment in Studio Network. The

government argues that it showed that Serpico invested $25,000 in the partnership in 1983, then sold his

share 5 years later for $500,000. The government claims

that the district court should have used Serpico’s gain as

an alternative measure of loss under §2F1.1 (which also

would be used under §2E5.1). See §2F1.1, comment. (n.8)

(“The offender’s gain from committing the fraud is an

alternative estimate that ordinarily will underestimate

the loss.”).

We have interpreted §2F1.1 of the 1990 guidelines to

require that the amount of loss be based on “the net

detriment to the victim.” See United States v. Mount,

966 F.2d 262, 265. Therefore, the defendant’s gain

should only be used when the loss to the victim cannot

be reasonably estimated (as the 2001 guidelines make

clear: “The court shall use the gain that resulted from

the offense as an alternative measure of loss only if there

is a loss but it reasonably cannot be determined.”), §2B1.1,

comment. (n.2(B)). The district court reasonably estimated the loss from the loans-for-deposits to be equal to

the additional amount the union entities could have

earned at banks offering more favorable rates on CDs. To

use the $475,000 that Serpico earned suggests that the

unions would have received an astounding 1,900 percent

return on their investments, a wholly unsubstantiated

claim.

To summarize: We affirm the convictions and the loss

calculations but remand for sentencing under §2E5.1.

AFFIRMED IN PART, REVERSED IN PART, and REMANDED.
12 Nos. 02-1702, 02-1726 & 02-1925

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—2-20-03