In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 03-2987

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

RICHARD J. COLLINS,

Defendant-Appellant.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 02 CR 831—Suzanne B. Conlon, Judge.

____________

ARGUED JANUARY 28, 2004—DECIDED MARCH 15, 2004

____________

Before MANION, DIANE P. WOOD, and EVANS, Circuit

Judges.

MANION, Circuit Judge. Richard Collins and others incorporated Gateway Association, Inc., and used it as a conduit

to fraudulently raise millions of dollars from unsuspecting

investors. Much of the money he kept for his own use or

transferred to benefit friends. Once caught and charged, he

pleaded guilty to two counts of mail fraud and was sentenced to ten years in prison. On appeal, Collins challenges

a four-level increase in his sentence, claiming that Gateway

was improperly labeled a financial institution under

U.S.S.G. § 2F1.1(b)(6). We affirm.
2 No. 03-2987

In November 1997, Richard Collins and his confederates

incorporated Gateway Association, Inc., in Illinois. Collins

used numerous “finders” who were paid to locate prospective investors and bring them to Gateway’s meetings. At

these meetings, Collins and others promoted Gateway as an

investment company primarily involved in the international

trading of bank instruments. Investors were told that, once

they paid a $2,500 fee to become Gateway members, they

were eligible for various benefits, including discounts on

shopping, hotels, and health care. Members would also be

able to invest in the bank debenture trading program, which

Collins promised would result in a risk-free return of as

much as 1,250%. Promises that seemed too good to be true

in fact turned out to be totally false. Gateway had no

investment program or discount program; the company was

part of Collins’s scheme to defraud investors for his own

personal gain. 

For a while the scheme worked. From November 1997 to

April 1999, Gateway received almost $11 million from at

least 400 investors. In the process of collecting these large

sums, Collins had to scramble to conceal the fraud. When an

investor would question the progress of an investment,

Collins would assure the individual that “a specialist recovery team” had been assembled to recover his funds and

that the money would be returned in the very near future.

On at least one occasion, Collins also returned a portion of

an investor’s principal as a show of good faith. Of course

Collins had no intention of returning most of the money,

as he had already spent approximately $634,000 of Gateway

funds on personal items and had withdrawn over $1,120,000

in cash from various Gateway accounts. Collins and others

also moved investor funds to the accounts of friends and to

overseas locations to conceal the misappropriation. Little of

this money would ever be recovered.
No. 03-2987 3

1 This guideline upward adjustment has changed locations

several times. At the time of Collins’s offense, it was found at

§ 2F1.1(b)(6). It was later renumbered to § 2F1.1(b)(7),

§ 2F1.1(b)(8), and finally § 2B1.1(b)(12), its current location. For

simplicity, we refer to the adjustment as § 2F1.1(b)(6).

In March 2003 Collins was charged with three counts of

mail fraud and one count of wire fraud. He eventually

pleaded guilty to two of the mail fraud counts. The plea

agreement stipulated that the 1997 edition of the sentencing

guidelines applied to the offense and that former U.S.S.G.

§ 2F1.1 was the applicable sentencing provision. However,

the parties disputed whether Collins’s offense level should

be increased by four levels for “substantially jeopardiz[ing]

the safety and soundness of a financial institution,” or “affect[ing] a financial institution and . . . deriv[ing] more than

$1,000,000 in gross receipts from the offense.” See U.S.S.G.

§ 2F1.1(b)(6) (1997)1

. The government argued in favor of

the four-level adjustment on the premise that Gateway was

a financial institution within the meaning of the guideline

and that Collins’s fraudulent conduct caused Gateway to

become insolvent. 

In preparing the presentence investigation report,

Collins’s probation officer initially disagreed with the government’s position because he believed that § 2F1.1(b)(6)

applied only to legitimate financial institutions, not shell

corporations. But after reading our decision in United States

v. Randy, 81 F.3d 65 (7th Cir. 1996), he agreed with the

government that the guideline covers corporations founded

for fraudulent purposes and thus recommended the fourlevel increase. Collins made three related objections to the

presentence report: (1) Gateway was not a “financial institution” within the meaning of the guideline because it was

never officially licensed or registered as an investment
4 No. 03-2987

company, and Gateway acted more as a discount club than

an investment company; (2) investment companies cannot

be considered “financial institutions” within the meaning of

the guideline because Congress did not define them as such

when it authorized the guideline in the Crime Control Act

of 1990; (3) Collins’s actions did not “affect” Gateway or

“substantially jeopardize” Gateway because Gateway was

the vehicle for the fraud, not a victim of it.

At sentencing in July 2003 the district court overruled

Collins’s objections. The court agreed with the government

that Gateway was a financial institution that had been substantially jeopardized by Collins’s actions:

. . . . The guideline provides for a four-level increase

when a defendant’s conduct jeopardizes a financial

institution, as that term is used in the guidelines and as

that provision is interpreted by the Seventh Circuit, a

company that holds itself out as an investment company

does constitute a financial institution under the guidelines.

As for Gateway, Gateway didn’t perpetrate this fraud.

The defendant and his cohorts did. Gateway, at one

point, was a solvent entity because of the millions of

dollars that a lot of victims invested based on these

misrepresentations. And certainly the solvency of

Gateway was not only affected, it was destroyed by the

fraud. So the four-level enhancement does apply and

the objection is overruled. 

The court’s decision to apply the adjustment had a

significant effect on Collins’s sentence. The additional four

levels gave Collins a total offense level of 30, and with a

Criminal History Category of III the resulting prison range

was 121 to 151 months rather than 78 to 97 months. How-
No. 03-2987 5

ever, because the two counts to which Collins pleaded guilty had a combined maximum penalty of ten years’ incarceration, see 18 U.S.C. § 1341 (1997), the court sentenced

Collins to 120 months. The court also denied the government’s motion under U.S.S.G. § 5K1.1 for a 25% departure

from the low end of the sentence because the court thought

that Collins had lied about the location of the stolen funds

that were still missing.

I.

On appeal Collins challenges only the application of

§ 2F1.1(b)(6), arguing first that “investment companies”

are not “financial institutions” under the 1997 sentencing

guidelines because Congress did not specifically include

them in its definition of “financial institutions” when it

passed the Crime Control Act of 1990, the authorizing statute for § 2F1.1(b)(6)(B). To support this argument, Collins

relies entirely on our decision in United States v. Tomasino,

206 F.3d 739 (7th Cir. 2000), modified by 230 F.3d 1034 (7th

Cir. 2000) (per curiam). In Tomasino, we evaluated whether

the Sentencing Commission had misinterpreted the definition of “financial institutions” in the authorizing statute

by expanding Congress’s definition to include pension

funds in the application note to § 2F1.1(b)(6). We opted to

err on the side of underpunishment, explaining that the

Commission might actually have relied on its legislative

power to expand the definition, but that we could not

say without additional explanation from the Commission.

Tomasino, 206 F.3d at 742. Accordingly, we gave the Commission a “reasonable opportunity to clarify” whether it had

acted in a legislative capacity in promulgating the expanded

definition, id. at 743, but the Commission declined the

invitation, id, 230 F.3d at 1035.
6 No. 03-2987

2 Collins does not challenge the district court’s characterization

of Gateway as an “investment company.” For a definition of

“investment company,” see United States v. Savin, 349 F.3d 27, 37

(2d Cir. 2003) (defining “investment company” in Application

Note 14 to § 2F1.1(b)(6) of the guidelines as “a company substantially engaged in the business of investing in securities of other

companies”).

Collins believes that his case is analogous to Tomasino

because “investment companies,”2

 although expressly defined as “financial institutions” in Application Note 14 to

the 1997 version of § 2F1.1(b)(6), are not included in Congress’s definition of “financial institutions” in the enabling

statute. Accordingly, Collins argues that it is impossible to

determine whether the Commission was exercising its

legislative power in expanding the definition of financial

institutions to include investment companies, and his

sentence should therefore be vacated. However, in 2001 the

Sentencing Commission effectively answered our earlier

request for clarification by amending the guideline commentary to state explicitly that it intended to implement, “in

a broader form,” Congress’s definition of “financial institutions.” U.S.S.G. § 2B1.1, comment. (backg’d) (2002).

Tomasino recognized that if the Commission were to add

this language to the background commentary it would be

“clear” evidence “that the Commission . . . was exercising its

legislative power” in promulgating the broader definition

of financial institutions. Tomasino, 206 F.3d at 741. 

When the Sentencing Commission amended the background commentary to show that it was exercising its legislative power to expand the congressional definition of

“financial institutions,” it merely clarified its authority to

enact the preexisting definition in Application Note 14

to § 2F1.1(b)(6), and so there is no issue in applying the
No. 03-2987 7

clarification retroactively. See Tomasino, 206 F.3d at 742-43

(“A clarifying guideline can lawfully be applied retroactively . . . . The background note does not prescribe

punishment and the question of its meaning is unrelated

to retroactivity.”); see also United States v. Hartz, 296 F.3d 595,

598 (7th Cir. 2002) (court may apply clarifying amendments

retroactively). Consequently, we may look to the Sentencing

Commission’s expanded definition of “financial institutions” in the 1997 guidelines—a definition that expressly

includes “investment companies.” See U.S.S.G. § 2F1.1,

comment. (n.14) (1997).

Collins next argues that his fraudulent acts did not

victimize Gateway within the meaning of § 2F1.1(b)(6)

because Gateway was merely a sham used to facilitate a

fraudulent scheme. The essence of Collins’s argument is that

a financial institution created solely for the purpose of

defrauding investors cannot be considered a victim of a

scheme to defraud. However, we came to the opposite conclusion in United States v. Randy, 81 F.3d 65 (7th Cir. 1996),

the only case we have found that deals with the application

of § 2F1.1(b)(6) to fraudulent corporations. Randy paid

$30,000 for a “bank,” which he named the Canadian Trade

Bank, from the WFI Corporation, “a company apparently in

the business of selling ‘paper’ banks which have no employees and no assets beyond the name and the banking license.” Randy, 81 F.3d at 66-67. The “bank” was initially

licensed by the government of Montserrat but soon lost the

license when Montserrat tightened its banking regulations.

Id. at 67. Randy then paid an additional $10,000 for the

purchase of another entity in Grenada, which he again

named the Canadian Trade Bank. Id. Because Grenada had

no licensing laws, the Canadian Trade Bank “became a

corporation which simply acted like a bank,” until Grenada

struck the company from the rolls of registered corporations

in 1991. Id. Using the Canadian Trade Bank name, Randy
8 No. 03-2987

developed a nationwide network of “brokers” who were

paid commissions to sell the “bank’s” certificates. Id. From

1990 to 1992, the “brokers” sold more than $16 million

worth of the certificates to more than 400 investors. Id.

However, aside from some money paid to investors as

“interest” in an attempt to prevent them from uncovering

the scheme, Randy spent the majority of the money on

private purchases and moved the rest into the accounts of

friends. Id.

In challenging the application of § 2F1.1(b)(6) on appeal,

Randy argued that “the Canadian Trade Bank was not the

sort of financial institution the Sentencing Commission intended the guideline to cover.” Id. at 69. We rejected this

argument and held that Randy’s “bank” fell within the

guideline definition of “financial institution” and upheld

the district court’s sentence:

The Canadian Trade Bank was licensed as a bank by

Montserrat and licensed by Grenada as a company with

broad banking powers. There is no reason to exclude it

from the definition in the application note. Furthermore,

when it walks and talks like a financial institution, even

if it’s a phony one, it is, in our view, covered by

§ 2F1.1(b)(6). 

Id. (emphasis added). There appears to be no meaningful

difference between the facts of Randy and the facts of the

present case that would remove Gateway from the reach of

§ 2F1.1(b)(6). Like the Canadian Trade Bank, Gateway, a

company incorporated in Illinois, was fraudulently held out

to investors as a financial company that offered the opportunity to invest in high-return, zero-risk investments. Like the

Canadian Trade Bank, Gateway utilized a network of

“employees” to draw over 400 unwitting investors into the

scheme, accumulating millions of dollars in receipts, all of

which would eventually be siphoned out of the company by
No. 03-2987 9

the company’s president and owner. Both companies

therefore “walked and talked” like the financial institutions

they purported to be.

Collins argues that his case is distinguishable from Randy

because the Canadian Trade Bank was licensed whereas

Gateway was only incorporated; the licensing of the Canadian Trade Bank was a factor that this court seemed to rely

on in Randy in holding that the company “walked and

talked” like a bank. Even if licensing is qualitatively different than incorporation for purposes of § 2F1.1(b)(6), a close

reading of Randy reveals that the Canadian Trade Bank had

no license when Randy began the scheme to defraud.

Instead, the Canadian Trade Bank was simply a corporation,

registered in Grenada, that represented itself as a bank that

offered investment certificates. This corporate status is

identical to the one held by Gateway during the course of

Collins’s scheme to defraud.

Our decision in Randy to apply § 2F1.1(b)(6) to fraudulent

corporations is supported by the Sentencing Commission’s

expansive interpretation of what it means to substantially

jeopardize the safety and soundness of a financial institution. The guidelines explain that an offense “shall be

deemed to have ‘substantially jeopardized the safety and

soundness of a financial institution’ if, as a consequence of

the offense, the institution became insolvent; substantially

reduced benefits to pensioners or insureds; was unable on

demand to refund fully any deposit, payment, or investment; was so depleted of its assets as to be forced to merge

with another institution in order to continue active operations; or was placed in substantial jeopardy of any of the

above.” U.S.S.G. § 2F1.1, comment. (n.15) (1997). Thus, the

Commission interprets § 2F1.1(b)(6) broadly, to cover

threats to the fiscal security of a corporation as well as the

loss of individual investments. Because the Sentencing
10 No. 03-2987

Commission extends the protections of § 2F1.1(b)(6) beyond

institutions to individual investors, it follows that the

Commission would intend the guideline to apply to conduct

that victimizes both legitimate and fraudulent corporations.

In both cases investors lose their investments due to fraudulent conduct. It makes no difference to the individual

investors in the present case whether Collins stole their

money from a legitimate corporation or one created for

fraudulent purposes; the important fact to the investors is

that their investments will not be repaid. 

Finally, Collins argues that even assuming fraudulent

corporations may be considered “victims” under

§ 2F1.1(b)(6), the guideline should still not apply because he

did not intend to cause harm to Gateway—the company

was merely a conduit for the harm that he intended to inflict

on individuals. This argument is meritless. The case that

Collins cites as support, Hartz, 296 F.3d at 600, actually

concludes that a fraudulent act need not be directly targeted

at a financial institution in order for the guideline to apply

so long as the institution is harmed as a collateral effect of

the fraudulent conduct. Thus, even if Collins’s scheme to

defraud had only an indirect effect on Gateway, his use of

Gateway to facilitate his scheme would fall within the scope

of § 2F1.1(b)(6) under the logic of Hartz. But it is difficult to

see how the insolvency of Gateway could be considered a

collateral effect. Collins admitted in the plea agreement to

having intended to steal every dollar sent by investors to the

Gateway corporation, and, as a result of the scheme, few

investors, if any, were able to recoup their investments. 

Before concluding, we note that Collins has raised another

argument in his reply brief. He argues, without citation to

any legal authority, that the case should be remanded

because the district court did not clarify which subsection,

(A) or (B), of § 2F1.1(b)(6) it was using in sentencing him.
No. 03-2987 11

Subsection (A) requires the court to apply the adjustment if

the defendant’s fraudulent offense “substantially jeopardized the safety and soundness of a financial institution”

while subsection (B) applies when the offense “affected a

financial institution and the defendant derived more than

$1,000,000 in gross receipts from the offense.” But Collins

does not explain how the court’s alleged error prejudiced

him, and in any case he has waived the argument by failing

to raise it in his opening brief, see Nelson v. La Crosse County

Dist. Attorney, 301 F.3d 820, 836 (7th Cir. 2002). Accordingly,

this final argument is also meritless.

AFFIRMED.

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—3-15-04