A Chicago-area businessman has been indicted on federal charges for making fraudulent claims to the government in order to bilk COVID relief money from the fund. Carlos Smith, 56, of Park Forest, Illinois is charged with fraudulently obtaining $420,000 in small business loans from the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program (EIDL). Both programs were created under the CARES Act. Smith has been charged with two counts of wire fraud, one count of making false statements to a financial institution, and one count of money laundering.
The Alleged Fraud
Federal investigators say that Smith applied for a $270,000 loan from the PPP for his company CLS Financial. In the loan application documents, Smith indicated that his company had 61 employees and an average monthly payroll of $108,000. But the company had no employees at all, let alone payroll. Smith also lied about having been convicted of a felony in the past.
For his other fraud, Smith indicated that his company had two employees and managed $1.8 million in gross revenues the year prior. The company had neither employees nor revenue. Smith was granted a $151,000 loan from the EIDL program.
Understanding Federal Fraud Charges
Essentially, fraud is a lie that convinces someone to give you money under false pretenses. The lie must be intentional. You cannot “accidentally” commit fraud. When the fraud is committed using the U.S. postal service, it is considered mail fraud. When the fraud is committed using electronic means, including the internet, it is considered wire fraud. The type of fraud matters less than the specific allegations, the amount stolen, and from where it was stolen.
Typical wire fraud prosecutions involve prison sentences of no more than 20 years, but if you defraud an emergency disaster relief program, your sentence can go up to 30 years. One thing that the government does not like is bad actors depriving needy individuals of funds earmarked to defibrillate a flatlined economy. So, you can expect federal prosecutors to attempt to get as many of those 30 years as possible.
Defenses to Wire Fraud
Let’s consider the defendant’s position for a moment. He owns a company with no employees or income. He files for payroll protection relief without having any employees. He tells the government he does have employees. He misrepresents his yearly income. He manages to acquire two loans in the amount of $420,000. He proceeds to launder the money. The government catches him. What is your defense to this?
In this case, the only plausible defense would be that the misrepresentation was not intentional. While criminal intent can be difficult for the prosecution to prove, it will not be in this case since the final act in the chain was laundering the money, if the allegations are true. This defendant will have very little leverage to plead down.
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