NOTICE OF MOTION AND MOTION in Limine to Exclude to Exclude Evidence and Argument of… — USA v. Ayvazyan et al (Dkt. 358)

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U.S. District Court for the Central District of California · No. 2:20-cr-00579-SVW · Doc. 358 · 2021-05-24 · Docket on CourtListener

Summary

The government's Motion in Limine #1 in United States v. Richard Ayvazyan, et al., No. 2:20-cr-00579-SVW, in the U.S. District Court for the Central District of California, filed May 24, 2021 as Document 358 with a declaration of Assistant United States Attorney Catherine Ahn. The motion asks the Court to exclude evidence and argument of alleged victim negligence and of SBA loan guarantees as a defense, and describes PPP lenders and loan processors, the SBA and account-holding banks as victims. It sets out the SBA's interim final rules for the PPP, including that lenders may rely on borrower representations, and the CARES Act authorization of $10 billion in EIDL grants. Citing United States v. Lindsey, 850 F.3d 1009 (9th Cir. 2017), it argues that a victim's negligence is not a defense to fraud and that materiality is an objective test.

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TRACY L. WILKISON 
Acting United States Attorney 
BRANDON D. FOX 
Assistant United States Attorney 
Chief, Criminal Division 
SCOTT PAETTY (Cal. Bar No. 274719) 
CATHERINE AHN (Cal. Bar No. 248286) 
BRIAN FAERSTEIN (Cal. Bar No. 274850) 
Assistant United States Attorneys 
Major Frauds/Environmental and Community Safety Crimes Sections 
1100/1300 United States Courthouse 
312 North Spring Street 
Los Angeles, California 90012 
Telephone: (213) 894-6527/2424/3819 
Facsimile: (213) 894-6269/0141 
E-mail: 
Scott.Paetty@usdoj.gov 
 
Catherine.S.Ahn@usdoj.gov 
 
Brian.Faerstein@usdoj.gov 
 
DANIEL S. KAHN 
Acting Chief, Fraud Section 
Criminal Division, U.S. Department of Justice 
CHRISTOPHER FENTON 
Trial Attorney, Fraud Section 
Criminal Division, U.S. Department of Justice 
1400 New York Avenue NW, 3rd Floor 
Washington, DC 20530 
Telephone: (202) 320-0539 
Facsimile: (202) 514-0152 
 
E-mail: 
Christopher.Fenton@usdoj.gov 
 
Attorneys for Plaintiff 
UNITED STATES OF AMERICA 
 
UNITED STATES DISTRICT COURT 
 
FOR THE CENTRAL DISTRICT OF CALIFORNIA 
 
UNITED STATES OF AMERICA, 
Plaintiff, 
v. 
RICHARD AYVAZYAN, 
aka “Richard Avazian” and 
    “Iuliia Zhadko,” 
MARIETTA TERABELIAN, 
  aka “Marietta Abelian” and     
      “Viktoria Kauichko,” 
ARTUR AYVAZYAN, 
aka “Arthur Ayvazyan,” and 
TAMARA DADYAN, 
MANUK GRIGORYAN, 
  aka “Mike Grigoryan,” and 
No. CR 20-579(A)-SVW 
GOVERNMENT’S MOTION IN LIMINE #1 
TO EXCLUDE EVIDENCE AND ARGUMENT 
OF ALLEGED VICTIM NEGLIGENCE AND 
GUARANTEES AS A DEFENSE; 
DECLARATION OF CATHERINE AHN 
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      “Anton Kudiumov,” 
ARMAN HAYRAPETYAN, 
EDVARD PARONYAN, 
aka “Edvard Paronian” and 
    “Edward Paronyan,” and 
VAHE DADYAN, 
 
Defendants. 
 
Plaintiff United States of America, by and through its counsel 
of record, the Acting United States Attorney for the Central District 
of California, Assistant United States Attorneys Scott Paetty, 
Catherine Ahn, and Brian Faerstein, and Department of Justice Trial 
Attorney Christopher Fenton, hereby files this motion in limine 
seeking to exclude evidence and arguments concerning alleged victim 
negligence and any reference to loan guarantees that specific victims 
in this case, specifically lenders and loan processors for the 
Paycheck Protection Program (“PPP”), may have been provided by the 
United States Small Business Administration (“SBA”).  
This motion is based upon the attached memorandum of points and 
authorities, the attached declaration, the files and records in this 
case, and such further evidence and argument as the Court may permit. 
Dated: May 24, 2021 
Respectfully submitted, 
 
TRACY L. WILKISON 
Acting United States Attorney 
 
SCOTT M. GARRINGER 
Assistant United States Attorney 
Chief, Criminal Division 
 
 
      /s/ 
 
CATHERINE AHN 
SCOTT PAETTY 
BRIAN FAERSTEIN 
Assistant United States Attorneys 
 
Attorneys for Plaintiff 
UNITED STATES OF AMERICA 
 
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MEMORANDUM OF POINTS AND AUTHORITIES 
I. 
INTRODUCTION 
The government hereby moves to exclude evidence and arguments 
concerning alleged victim negligence and any reference to loan 
guarantees that specific victims in this case, specifically lenders 
and loan processors for the Paycheck Protection Program (“PPP”), may 
have been provided by the United States Small Business Administration 
(“SBA”).  As the guarantor of eligible PPP loans, the SBA itself 
further qualifies as a victim of defendants’ alleged offenses, as do 
the banks and financial institutions that held the accounts into 
which the fraudulent PPP and Economic Injury Disaster Loan (“EIDL”) 
proceeds were deposited, transferred through, or received.  For the 
reasons described below, evidence and arguments concerning any 
alleged negligence on the part of the above-referenced victims, or 
the SBA’s guarantee, are irrelevant to the question of defendants’ 
guilt and inadmissible as a defense. 
II. 
STATEMENT OF FACTS 
A. 
Defendants’ Alleged Fraud, Money-Laundering, Identity 
Theft, and Bank and Wire Fraud and Money-Laundering 
Conspiracies  
The government incorporates herein by reference the statement of 
facts, as they relate to the charges in this case, contained in its 
opposition to defendant Richard Ayvazyan’s Motion in Limine #1 (ECF 
357 at 2).  
As relevant to this motion, the government expects that the 
trial evidence will show that the defendants and coconspirators took 
affirmative steps to submit or cause the submission of false and 
fraudulent information and documentation as part of defendants’ 
alleged bank fraud, wire fraud, and money laundering conspiracies and 
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aggravated identity theft.  Defendants did so in order to 
fraudulently obtain emergency economic funds intended to, among other 
things, enable small businesses to keep their businesses operating 
and employees on payroll through the crisis of COVID-19.  These funds 
were authorized by the Coronavirus Aid, Relief, and Economic Security 
Act of 2020 (“CARES Act”) (Pub. L. 116-136), and distributed by the 
SBA through the EIDL program as well as through SBA-approved PPP 
lenders and processors.  (See First Superseding Indictment ¶¶ 10-18 
(ECF 154).)   
Defendants used numerous synthetic and false identities of 
individuals and businesses to submit, and cause to be submitted, PPP 
and EIDL applications.  Defendants and coconspirators then moved the 
fraudulent loan proceeds into and through accounts, including 
accounts opened in names other than their own.  (See e.g., id. ¶¶ 1, 
31(a)-(b), 31(f), 43-51, 61-63.)  By so doing, they concealed the 
original source of the fraudulent funds and used the funds for 
expenses that were prohibited by the requirements of the PPP.  (Id.)  
When financial institutions froze the funds in accounts opened in the 
names of stolen identities, defendants such as Tamara Dadyan 
attempted to continue their fraud by repeatedly making calls to the 
financial institution and repeating her false representations.  (Id. 
¶¶ 61-62.) 
B. 
The Structure of the PPP  
Following the enactment of the CARES Act, the SBA issued interim 
final rules establishing and regulating the PPP.1  See SBA, Interim 
 
1 In January 2021, the SBA issued an interim final rule 
announcing a second round of PPP loans authorized by section 311 of 
the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues 
(footnote cont’d on next page) 
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Final Rules, 85 Fed. Reg. 20811 (April 15, 2020) (the “First Rule”) 
and 85 Fed. Reg. 33010 (June 1, 2020) (the “Lender Rule”).  The SBA 
recognized that speed was of the essence in distributing COVID-19-
related economic relief.  “The intent of the [CARES] Act is that SBA 
provide relief to America’s small businesses expeditiously, which is 
expressed in the Act by giving all lenders delegated authority and 
streamlining the requirements of the [SBA’s] regular 7(a) loan 
program.”  Lender Rule, 85 Fed. Reg. 33011.  If borrowers used PPP 
loans used for eligible expenses, such as payroll, the funds used for 
those expenses could be forgiven and the SBA guaranteed PPP lenders 
the remaining amount of the loan.  See First Rule, 85 Fed. Reg. 20816 
and SBA, Interim Final Rule, 85 Fed. Reg. 33004 (June 1, 2020) (the 
“Forgiveness Rule”).   
Given the need for expeditious distribution of PPP funds, the 
SBA emphasized that “lenders may rely on borrower representations” 
and, to the extent the application contained errors or needed further 
support, “the lender should work with the borrower to remedy the 
issue.”  Lender Rule, 85 Fed. Reg. 33013; see also First Rule, 85 
Fed. Reg. 20815-20816.  However, since “loans and loan forgiveness 
are provided based on the borrower’s certifications and documentation 
provided by the borrower,” the SBA has the authority to review 
individual PPP loans to determine if the borrower was ineligible and 
require additional documentation from PPP lenders.  Lender Rule, 85 
Fed. Reg. 33012. 
The SBA further warned that it would seek repayment of lender 
processing fees associated with an ineligible loan, and clawback such 
 
Act.  See SBA, Interim Final Rule, 86 Fed. Reg. 3712 (January 14, 
2021).  The PPP rules and regulations discussed in this motion are 
limited to the first round or first draw PPP loans. 
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fees if it determined a lender had not fulfilled its obligations 
under PPP regulations.  Id.  Although the SBA assured PPP lenders 
that borrower ineligibility would not affect the SBA’s guarantee of a 
PPP loan, the availability of that guarantee was subject to lender 
compliance with, among other things, the SBA’s First Rule.  Lender 
Rule, 85 Fed. Reg. 33014.  The SBA expected lenders to abide by the 
due diligence and anti-money laundering program requirements of the 
Bank Secrecy Act, including but not limited to practices such as 
establishing a customer identification program, and were expected to 
“understand the nature and purpose of their PPP customer 
relationships to develop customer risk profiles.”  First Rule, 85 
Fed. Reg. 20815. 
C. 
The CARES Act Authorization of EIDL Funds 
The CARES Act further authorized the SBA to distribute $10 
billion in emergency EIDL grants.  15 U.S.C. § 9006(a)(6).  The CARES 
Act waived EIDL rules, outlined verification methods that relied on 
borrower representations, and permitted the SBA to approve applicants 
based solely on their credit score.  See 19 U.S.C. § 9009(c)(1)-(2), 
(d)(1), and (e)(2).  For example, the SBA could verify an applicant’s 
eligibility for EIDL funds through a self-certification provided 
under penalty of perjury.  19 U.S.C. § 9009(e)(2). 
III. ARGUMENT 
The Ninth Circuit recently held, in an opinion citing numerous 
other circuit’s similar holdings, that “a victim’s negligence is not 
a defense to . . . fraud,” and “[e]vidence of lender negligence is 
thus not admissible as a defense . . .”  United States v. Lindsey, 
850 F.3d 1009, 1014 (9th Cir. 2017) (affirming district court’s 
decision to exclude any evidence of victim negligence and citing 
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cases from the Second, Third, Fourth, and Fifth Circuits).  The Ninth 
Circuit has ruled against the admissibility of an individual lender’s 
supposed negligence in numerous cases and contexts since the 
publication of Lindsey, including United States v. Palamarchuk, 791 
Fed. Appx. 658, 660 (9th Cir. 2019) (“neither individual victim 
lender negligence nor an individual victim lender’s intentional 
disregard of relevant information is a defense to mail fraud”) and 
United States v. Ellison, 704 F. App’x 616, 620 (9th Cir. 2017) (“a 
victim’s negligence is not a defense” to securities fraud).  Through 
Lindsey, the Ninth Circuit resolved the debate as to inadmissibility 
of an individual victim lender’s negligence, careless decision-
making, or even reckless indifference to a fraud scheme, holding that 
a lender’s negligence “does not mean lenders can be victimized by 
intentional fraudulent conduct with impunity merely because the 
lenders were negligent, or even because the lenders intentionally 
disregarded the information in a loan application.  Two wrongs do not 
make a right.”  Id.  A “[l]enders’ negligence, or even intentional 
disregard, cannot excuse another’s criminal fraud.”  Id.   
Other courts have reached similar conclusions.  United States v. 
Coyle, 63 F.3d 1239, 1244 (3d Cir. 1995) (“[T]he negligence of the 
victim in failing to discover a fraudulent scheme is not a defense to 
criminal conduct.”); United States v. Moore, 923 F.2d 910, 917 (1st 
Cir. 1991) (“[I]t is not a defense that the bank might have prevented 
its losses had it better internal controls or procedures.”); United 
States v. Winkle, 477 F.3d 407, 418 (6th Cir. 2007) (approving the 
exclusion of an FDIC report that criticized the bank fraud victim’s 
failure to detect a fraud scheme); United States v. Rennert, 374 F.3d 
206, 213 (3d Cir. 2004) (“fraud victim’s negligence or lack of 
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diligence in uncovering the fraud is not a defense”); United States  
v. Thomas, 377 F.3d 232, 243-44 (2d Cir. 2004) (affirming 
restrictions on cross of victim; rejecting defendant’s argument that 
victim’s foolishness vitiated defendant’s fraudulent intent).   
In the Ninth Circuit, as in other circuits, the government need 
not prove that a fraud scheme was calculated to deceive only persons 
of ordinary prudence and comprehension, as fraud statutes protect the 
naïve as well as the “worldly-wise,” and it is immaterial whether 
only the most gullible victims would have been deceived.  United 
States v. Ciccone, 219 F.3d 1078, 1083 (9th Cir. 2000).  As discussed 
above, the susceptibility of a victim to a fraud scheme, including a 
victim financial institution, is irrelevant to a defendant’s guilt or 
innocence.  United States v. Hanley, 190 F.3d 1017, 1023 (9th Cir. 
1999) (superseded by statute on other grounds).  As explained by the 
Fourth Circuit in United  States v. Colton, 231 F.3d 890 (4th Cir. 
2000), “[t]he susceptibility of the victim of the fraud, in this 
case, a financial institution, is irrelevant to the analysis: If a 
scheme to defraud has been or is intended to be devised, it makes no 
difference whether the persons the schemers intended to defraud are 
gullible or skeptical, dull or bright.  These are criminal statutes, 
not tort concepts.”  231 F.3d at 903.  Whether the institutional 
victim’s internal controls or personnel were sufficient to detect and 
prevent fraud is irrelevant to the crimes charged in this case, and 
inadmissible as a defense.   
The Ninth Circuit in Lindsey also rejected the argument, 
commonly made by defendants in fraud cases, that victim negligence is 
somehow relevant to materiality.  As the Court held in Lindsey, the 
materiality requirement does not allow defendants to backdoor victim 
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negligence into a case because materiality is an objective, not 
subjective test.  Lindsey, 850 F.3d at 1015 (“A false statement is 
material if it objectively had a tendency to influence, or was 
capable of influencing, a lender to approve a loan.”); accord United 
States v. Peterson, 538 F.3d 1064, 1072 (9th Cir. 2008) (“‘capable of 
influencing’ is an objective test, which looks at the intrinsic 
capabilities of the false statement itself, rather than the 
possibility of the actual attainment of its end.”) (internal 
citations and quotation marks omitted).  The materiality requirement 
is not concerned with a statement’s subjective effect, but instead on 
a statement’s intrinsic capability to influence.  Peterson, 538 F.3d 
at 1072.  Along similar lines, the Ninth Circuit has held that a 
“misrepresentation may be material without inducing any actual 
reliance.”  United States v. Blixt, 548 F.3d 882, 889 (9th Cir. 2008) 
(internal citation omitted); see also Neder v. United States, 527 
U.S. 1, 24–25 (1999) (“The common-law requirement[ ] of ‘justifiable 
reliance’ ... ha[s] no place in the federal fraud statutes.”).  
In the instant case, the relevant inquiry is whether: 
(i) defendants and coconspirators submitted fraudulent PPP and EIDL 
applications, opened and used bank accounts using fraudulently 
obtained personal or business information, and transferred the 
fraudulent loan proceeds in a manner that obscured their origin (or 
caused any of such conduct to happen); (ii) whether defendants and 
coconspirators had the requisite intent to defraud the SBA, PPP 
lenders and processors, and financial institutions holding the 
accounts into and through which fraudulent loan proceeds were 
deposited or transferred; and (iii) for the purpose of certain 
counts, whether the information that defendant submitted and withheld 
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from the SBA, PPP lenders and processors, and financial institutions 
had the natural tendency to influence or was capable of influencing 
them.  Hindsight challenges to any of these institutional victims’ 
internal controls are irrelevant, a waste of time, and create the 
risk of jury confusion.  See Fed. R. Evid. 404(b). 
Accordingly, this Court should prohibit defendants from 
introducing evidence or making arguments concerning any supposed 
victim negligence, including any criticism of a PPP lender, 
processor, or SBA’s internal controls, as well as the internal 
controls of banks and financial institutions whose accounts were used 
to receive or transfer fraudulent loan proceeds.  United States v. 
Biesiadecki, 933 F.2d 539, 544 (7th Cir. 1991) (upholding exclusion 
of testimony that “would have improperly shifted the jury’s attention 
away from the knowledge and intent of [defendant] and focused instead 
on the beliefs of the victim of the alleged scheme to defraud”).  
For similar reasons, the Court should exclude any evidence or 
arguments concerning the SBA’s guarantees to PPP lenders as a defense 
to the alleged fraud, money laundering, identity theft, and 
conspiracies.2  The government does not know on what basis the 
defense would try to introduce evidence or make arguments concerning 
this guarantee, but any such evidence and arguments would be 
irrelevant to the case, a waste of time, and tend to confuse and 
 
2 The government acknowledges that facts related to the 
structure of the PPP, including loan forgiveness and SBA guarantees, 
are relevant to the alleged offenses.  The government’s motion is to 
exclude defense arguments and evidence proffering these guarantees as 
a defense to fraud and evidence of victim negligence (e.g., victims 
were less likely to scrutinize applications because of the SBA’s loan 
guarantees).  Such arguments and evidence are inadmissible for the 
reasons described herein. 
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mislead the jury, and as such it should be excluded.3  Even in civil 
cases, were a victim’s negligence might be relevant to damages, 
evidence of financial compensation (insurance) is inadmissible to 
prove negligence or wrongdoing.  Fed. R. Evid. 411.  This is even 
more true in the criminal context of the instant case, where victim 
negligence is irrelevant, and should therefore be excluded.  
IV. 
CONCLUSION 
For the foregoing reasons, the government respectfully requests 
that this Court exclude evidence of victim negligence and SBA 
guarantees because it is irrelevant to the question of defendants’ 
guilt and inadmissible as a defense. 
 
 
3 As noted in the attached declaration, counsel for defendant 
Richard Ayvazyan would not agree that it should be excluded but did 
not offer any grounds for seeking to introduce it.  As of the date of 
this filing, counsel for the remaining defendants have not stated a 
position.  See Ahn Decl. ¶ 2. 
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