Early 2023 has brought harsh sentences for those convicted of COVID-19-related fraud, with the most recent ranging from three months to over five years in prison.

The federal government's success in securing severe prison sentences for COVID-19-related fraud sends a clear message to any individual or business that benefited from pandemic-related government aid that along with enhanced scrutiny and continued investigations, those who are convicted of fraud involving COVID-19 assistance programs could face serious time behind bars.

Because the government is vigorously investigating and prosecuting these crimes even when the federal loans involved are relatively small, defense counsel seeking to prevent their clients from serving long prison sentences should be prepared to zealously argue against any alleged sentencing enhancements and emphasize all relevant factors under Title 18 of the U.S. Code, Section 3553, which are applicable to their clients in their sentencing memoranda.

CARES Act

The Coronavirus Aid, Relief and Economic Security Act, enacted in March 2020, included trillions of dollars in economic aid for individuals and businesses affected by the pandemic.

The government funds were provided through the Small Business Administration as forgivable loans to cover payroll and other specified expenses through the Paycheck Protection Program. The CARES Act also provided government assistance through the Economic Injury Disaster Loan Program and unemployment insurance program.

Some, however, took advantage of these government assistance programs. Certain applicants intentionally made misrepresentations on loan documents submitted to lenders and the government.

Weeks after the CARES Act took effect, the government began investigating those who received the loans. The government soon allocated unprecedented resources to combating COVID-19-related fraud and vowed to ensure that it would quickly investigate and prosecute recipients who fraudulently took advantage of the CARES Act programs.

COVID-19-Related Sentences in 2023

The courts have made it clear early in the first quarter of 2023 that pandemic-related fraud will be punished harshly with severe prison terms.

On Jan. 4, in Palm Beach County, Florida, [1] the U.S. District Court for the Southern District of Florida sentenced Derek James Acree to 41 months in prison for submitting fraudulent loan applications seeking more than $1.6 million in forgivable EIDL and PPP loans. He submitted loan applications for companies he did not own, or only owned in part.

The loan applications also misrepresented the number of employees, payroll expenses and gross revenues. He then transferred some of the funds to other people and used the proceeds to purchase jewelry, travel and make repairs on his boat and home. Along with 41 months in prison, the man was ordered to pay $1.26 million in restitution and $1.6 million in asset forfeiture.

Also on Jan. 4, 2023, the U.S. District Court for the Southern District of New York sentenced Juan Carlos Castro Gonzalez [2] to 40 months in prison in connection with his participation in COVID-19-related tax fraud and unemployment benefits fraud schemes that resulted in actual losses totaling over $570,000 and intended losses of over $3.3 million.

He worked with others to obtain fraudulent tax refunds, controlled several bank accounts under different identities and verified CARES Act unemployment insurance benefit applications to the New York Department of Labor that had been fraudulently submitted using the names and Social Security numbers of people who were unaware that such applications had been made using their personal information.

The funds were sent to specified bank accounts or to prepaid cards controlled by Gonzalez. In addition to a 40-month prison term, he was ordered to pay restitution of $574,202.01.

Also on Jan. 4, another New York man, Melvin Ansong, [3] was sentenced by the U.S. District Court for the Northern District of New York to 39 months in prison for mail fraud, wire fraud and aggravated identity theft in connection with schemes to obtain unemployment insurance benefits and government-backed pandemic-related loans.

Ansong admitted that he fraudulently obtained unemployment insurance benefits in the names of 13 other people and fraudulently obtained an EIDL loan by claiming that he owned a nonexistent pet grooming company.

In addition to 39 months in prison, U.S. District Judge Mae D'Agostino sentenced him to one year of supervised release, to begin following his term of imprisonment, and ordered him to pay restitution in the amounts of $165,182 to the state of New York, $18,480 to the state of Arizona, and $8,000 to the SBA.

In U.S. v. Rodericque Thompson early this year, 11 individuals, eight from Georgia and three from South Carolina, were sentenced by the U.S. District Court for the Northern District of Georgia for their roles in obtaining approximately $3 million in PPP loans on behalf of 10 businesses based in the two states. [4]

The scheme consisted of submitting fraudulent loan applications that contained numerous false and misleading statements about the various businesses. Fraudulent quarterly tax returns were also submitted in connection with each loan application. After they received the funds, the business owners wrote fake payroll checks to people who did not work for the businesses and kept the money for themselves.

The government has already recovered approximately $1.2 million of the stolen money. Ten of the defendants involved in this scheme pleaded guilty. One defendant went to trial and was convicted. The 11 defendants' sentences ranged from three months to over five years in prison, and restitution ranged from approximately $115,000 to over $2.7 million.

On Jan. 13, the U.S. District Court for the Northern District of Ohio sentenced Deon Levy, [5] the owner of two corporations in Ohio, to 15 months in prison and ordered him to pay $195,900.34 in restitution. He was part of a nationwide scheme in which co-conspirators submitted fraudulent PPP applications to the SBA, falsifying bank statements and payroll tax forms. The PPP applications also falsely represented the number of employees and amount of monthly payroll.

On Jan. 23, Levelle Joseph Harris [6] was sentenced by the U.S. District Court for the Middle District of Florida to 27 months in prison and ordered to pay $1.28 million. Harris applied for 14 PPP loans using applications that included false representations and fake supporting documents. He used the PPP funds to buy a new car and investment properties.

Understanding Pandemic-Related Sentencings

The harsh prison sentences that have already been handed down in 2023, at times for loans that were relatively small and to defendants who were first-time offenders, demonstrates that the government and the courts continue to take all pandemic-related fraud seriously.

In relation to a recent guilty plea for a COVID-19-related scheme, U.S. Attorney David Estes stated,

This conviction represents the continuing, vigorous pursuit of those who undeservedly accessed government funding for struggling small businesses during the COVID-19 pandemic … we will hold responsible those who attempt to illegally profit from these programs. [8]

It is important that defense counsel prepare for pandemic-related sentencings from the very beginning of a case. The submission of sentencing memoranda evaluating Section 3553 factors, as well as carefully reviewing and objecting to the presentence report, [9] could greatly affect these white collar defendants' sentences.

This appears even more critical in pandemic-related cases, in which first-time offenders are receiving relatively high prison sentences even when the loss amount appears to be relatively low.

In evaluating a client's presentence report, defense counsel should timely object to any enhancements. An enhancement for a defendant who was allegedly an organizer, leader, manager or supervisor in any criminal activity is common in pandemic fraud cases. [10]

In objecting to that enhancement, defense counsel should carefully evaluate the relevant factors in the sentencing guidelines and case law to argue that the enhancement would not be applicable to the particular defendant. [11]

Just as defense counsel may want to object to the aggravating factor of having a major role in the crime, defense counsel may also want to argue that the defendant actually had a minor role in the crime, [12] and should be awarded a decrease in the applicable sentencing guideline range.

Another common enhancement is an increase in the sentencing guidelines range for using so-called sophisticated means to orchestrate the crimes. [13] The sophisticated means enhancement means "especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense." [14]

The sentencing guidelines provide examples of sophisticated conduct, which can include hiding assets or transactions through the use of fictitious entities, corporate shells or offshore financial accounts. An appropriate objection to this enhancement in a multidefendant case may be that the particular defendant was not the actor who intentionally engaged in the conduct that constituted the sophisticated means.

The enhancement states that "the defendant intentionally engaged in or caused the conduct constituting sophisticated means." [15] The U.S. Sentencing Commission specifically added this language in 2015 because it wanted to focus on the particular defendant's own conduct, not the conduct of co-defendants. [16]

Because early 2023 has already brought harsh sentences for those convicted of COVID-19-related fraud, defense attorneys should be sure to carefully review their client's presentence report, argue against any particular enhancements for their clients, and emphasize the Section 3553 factors that weigh in favor of their clients.

Unlike in the past, first-time white collar defendants can no longer count on a lower loss amount to keep them out of prison. With pandemic-related crimes in particular, timely objecting to enhancements in presentence reports and making creative arguments in sentencing memoranda are just as important.

It also especially important that attorneys make clients aware that the statute of limitations for PPP and EIDL fraud was increased to 10 years. Thus, while clients may not be currently under criminal investigation, the government has many years to prosecute these cases.

Defense counsel should proactively contact clients that received government loans from the SBA to discuss compliance with the CARES Act and any potential fraud exposure. Taking proactive steps, rather than waiting to be contacted by the government, can mean the difference for a borrower between resolving a monetary civil issue and spending years in prison.

[1] United States v. Derek James Acree, Southern District of Florida.

[2] United States v. Juan Carlos Castro Gonzalez.

[3] United States v. Melvin Ansong, Northern District of New York.

[4] United States v. Rodericque Thompson, Northern District of Georgia.

[5] United States v. Deon D. Levy, Northern District of Ohio.

[6] United States v. Levelle Joseph Harris, Middle District of Florida.

[7] David H. Estes, U.S. Attorney for the Southern District of Georgia.

[8] Press Release, Augusta man admits to COVID-19 scheme that netted more than $4 million in loans and grants, January 19, 2023, available at: https://www.oig.dol.gov/public/Press%20Releases/Augusta%20man%20admits%20to%20COVID-19%20scheme%20that%20netted%20more%20than%204%20million%20in%20loans%20and%20grants_USAO.pdf.

[9] A PSR is a document that summarizes the life history of a person convicted of a felony in federal court. The PSR also summarizes the crime that the defendant committed. The PSR is ordered to be completed by a federal judge and is completed by the federal probation office. The United States attorney, judge and defense attorney will all use the PSR to assist with determining the appropriate sentencing.

[10] U.S.S.G. §3B1.1.

[11] U.S.S.G. § 3B1.1 cmt. n.4; See e.g., United States v. Martinez , 584 F.3d 1022 (11th Cir. 2009) (hold that court clearly erred in imposing a leadership role enhancement to the defendant's offense level calculation under the Sentencing Guidelines.).

[12] U.S.S.G. §3B1.2.

[13] U.S.S.G. §2B1.1(b)(10)(C).

[14] U.S.S.G. §2B1.1(b)(10)(C) app. note 9.

[15] U.S.S.G. §2B1.1(b)(10)(C).

[16] U.S. Sentencing Commission, Amendments to the Guidelines 25 (April 30, 2015); Amendment 792, November 1, 2015.

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