Indictment as to Carlos Smith (1) count(s) 1-2, 3, 4 — USA v. Smith (Dkt. 1, N.D. Ill.)

Record facts

U.S. District Court for the Northern District of Illinois · No. 1:20-cr-00922 · Doc. 1 · 2020-12-17 · Docket on CourtListener

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UNITED STATES DISTRI.CT COURT 
NORTHERN DISTRICT OF ILLINOIS 
EASTERN DIVISION 
UNITED STATES OF AMERICA 
Case No.: 
V. 
CARLOS SMITH 
Violations: Title 18, United States 
Code, Sections 1014, 1343, 1957 
UNDER SEAL 
COUNT ONE 
The SPECIAL JANUARY 2020 GRAND JURY charges: 
1.
At times material to this indictment:
a.
Bank A was a financial institution, the deposits of which were
insured by the Federal Deposit Insurance Corporation. 
b.
U.S. Small Business Admini$tration ("SBA") was a United States
government agency that provided support to small businesses. 
c.
CLS Financial Services, Inc. was a for-profit corporation
incorporated in Indiana in 2014. 
d.
CARLOS SMITH was the CEO and owner of CLS Financial
Services, Inc. SMITH resided in Park Forest, Illinois. 
e.
The Coronavirus Aid, Relief, and Economic Security ("CARES")
Act was a federal law enacted in or around March 2020 and designed to provide 
emergency financial assistance to the millions of Americans who were suffering the 
economic effects caused by the COVID-19 pandemic. 
f.
One source of relief provided by the CARES Act was the
authorization of up to $349 billion in forgivable loans to small businesses for job 
   FILED
12/17/2020
OM
CLERTH
A
K, U.S. DISTRICT CO
S G. BRUTON URT
DB
20cr922
Judge Manish S. Shah
Magistrate Judge Sheila M. Finnegan
Case: 1:20-cr-00922 Document #: 1 Filed: 12/17/20 Page 1 of 13 PageID #:1

retention and certain other expenses, through a program called the Paycheck
Protection Program ("PPP"). In or around April 2020, Congress authorized over $320
billion in additional funding for PPP loans.
g. 
In order to obtain a PPP loan, a business submitted a PPP loan
application, which was signed by an authorized representative of the business. The
PPP loan application required the business (through its authorized representative)
to acknowledge the program rules and make certain affi.rmative certifications
regarding its eligibility. In the application, the small business's authorized
representative was required to provide, among other things, the business's average
monthly payroll expenses and number of employees. These fi.gures were used to
calculate the business's eligibility and the amount of money it could receive under the
PPP. In addition, the authorized representative was required. to answer questions
relating to the representative's criminal history. Applicants were also required to
make good faith certifications, including that economic uncertainties have
necessitated their loan requests for continued business operations.
h. 
PPP loan proceeds were required to be used by the business for
certain permissible expenses-payroll costs, interest on mortgages, rent, and
utilities. The PPP allowed the interest and principal on the PPP loan to be entirely
forgiven by the Small Business Administration ('SBA") if the business spent the loan
proceeds on these items within a d.esignated period of time and used at least a certain
percentage of the PPP loan for payroll expenses.
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To gain access to funds through the PPP, small businesses applied
through financial institutions participating in the PPP and received the loans directly
from those financial institutions as the lender.
Participating financial institutions required applicants for PPP
loans to provide truthful information about the business and its owner, including
truthful information about the business's operating expenses, the business's
employees, how the PPP loan would be used, and the applicant's criminal history,
which information was material to lenders' approval, terms, and funding of loans.
k. 
Another source of relief provided by the CARES Act was the
expansion of the Economic Injury Disaster Loan ("EIDL") Program, which provided
loan assistance (including advances of up to $10,000) for businesses with 500 or fewer
employees and other eligible entities for loans up to $150,000. The EIDL Program
was designed to provide economic relief to small businesses that are experiencing a
temporary loss of revenue.
1. 
To gain access to funds through the EIDL Program, small
businesses applied through the SBA via an online portal and application. As part of
the EIDL application process, the SBA required applicants to submit truthful
information concerning the business and the business owner, including information
as to the gross revenues for the business prior to January 31, 2020; the cost ofgoods
sold; and information as to any criminal history of the business owner. Applicants
were required to electronically certifu that the information provided was accurate and
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were warned that any false statement or -isrepresentation to the SBA may result in
sanctions, including criminal penalties.
m. 
EIDL funds were issued to the small business applicants directly
from the United States Treasury.
n. 
EIDL Advance was a grant program offered together with the
EIDL program. The amount of the advance issued to the small business applicant
was determined by the number of employees indicated on the EIDL application,
$1,000 per employee, up to $10,000. 
.!
EIDL loan proceeds were permitted to be used to pay an array of
working capital and normal operating expenses, such as continuation of health care
benefits, rent, utilities, and fixed debt payments.
2. 
Beginning in or around June 2020, and continuing until in or around
October 2020, in the Northern District of lllinois, Eastern Division, and elsewhere,
CARLOS SMITH,
defend.ant herein, knowingly devised, intended to devise, and participated in a
scheme to defraud, and to obtain money and property from government relief
progxams by means of materially false and fraudrilent pretenses, representations,
and promises, as further described below.
3. 
It was part of the scheme that defendant SMITH submitted applications
for loans under the PPP and EIDL programs seeking hunfueds of thousands of dollars
for CLS Financial Services, Inc., that contained false statements, misrepresentations,
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and omissions related to CLS Financial Services, Inc. and SMITH's prior criminal
record.
The PPP Loan
4. 
It was part of the scheme that, on or about July 27,2O2O, SMITH, in his
capacity as authorized representative of CLS Financial Services, Inc., applied for a
PPP loan in the amount of $270,000 from Bank A.
5. 
It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH represented to Bank A on the PPP loan application that the
PPP loan was "necessary to support the ongoing operations of the business." SMITH
knew at the time that CLS Financial Services, Inc. had no "ongoing operations."
6. 
It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH represented on the loan application that the PPP loan "would
be used to retain workers and maintain payroll or make mortgage interest payments,
Iease payments, and utility payments." SMITH knew at the time that CLS Financial
Services, Inc. had no employees or payro1l, and that CLS Financial Services, Inc.
would not use the PPP funds for these expenses.
7. 
It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH fraudulently represented on the loan application that CLS
Financial Services, Inc. had 61 employees and an average monthly payroll of
$108,000, to make it falsely appear that CLS Financial Services, Inc. had payroll
expenses. SMITH knew at the time that CLS Financial Serr.ices, Inc. had no
employees or payroll.
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8. 
It was further part of the scheme that, in order to obtain a PPP Ioan
from Bank A, SMITH attached falsified tax forms, to make it falsely appear that CLS
Financial Services, Inc. had paid employee wages and had withheld federal income
taxes from the employees' wages in 2019 and 2020. SMITH knew at the time that
CLS Financial Services, Inc. had no employees or payroll, and knew that the attached
tax forms were falsified.
9. 
It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH fraudulently represented that, within the last 5 years, SMITH
had not been convicted of or pleaded guilty to a felony. SMITH knew at the time that
he had been convicted of a felony within the last 5 years.
10. It was further part of the scheme that, through the submission of the
false and fraudulent PPP loan application, SMITH caused Bank A to disburse a PPP
loan of $270,000 on or about September 23,2020 into a bank account that defendant
maintained at Bank A in the name of CLS Financial Services, Inc., and of which
defendant was the only signatory. SMITH knew at the time that neither he nor CLS
Financial Services, Inc. was entitled to the PPP loan funds.
The EIDI
11. It was further part of the scheme that, on or about April 2,2020, SMITH,
in his capacity as authorized representative of CLS Financial Services, Inc., applied
for an EIDL from the SBA.
t2. It was further part of the scheme that, in order to obtain an EIDL from
the SBA, SMITH fraudulently represented that, for the L2 months prior to the
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disaster, CLS Financial Services, Inc. had gross revenue of $1,826,000 and cost of
goods of $860,000, to make it falsely appear that CLS Financial Services, Inc. had
such revenue and cost of goods during that time period.
13. It was further part of the scheme that in order to obtain an EIDL from
the SBA, SMITH fraudulently represented on the loan application that CLS
Financial Services, Inc. had 2 employees. SMITH knew at the time that CLS
Financial Services, Inc. had no employees.
14. It was further part of the scheme that, through the submission of the
false and fraudulent EIDL application, SMITH caused the SBA to disburse an EIDL
of $149,900 on or about June 8, 2020, into a bank account that defendant maintained
at Bank B in the name of CLS Financial Services, fnc., and of which defendant was
the only signatory. SMITH knew at the time that neither he nor CLS Financial
Services, Inc. was entitled to the EIDL funds.
15. It was further part of the scheme that, through the submission of the
false and fraudulent EIDL application, SMITH caused the SBA to disburse an EIDL
advance of $2,000 on June 12, 2020, into a bank account that defendant maintained
at Bank B in the name of CLS Financial Services, Inc., and of which defendant was
the only signatory. SMITH knew at the time that neither he nor CLS Financial
Services, Inc. was entitled to the EIDL advance funds.
16. It was further part of the scheme that SMITH misrepresented,
concealed, and hid and caused to be misrepresented, concealed, and hidden, certain
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material facts, including the acts and purposes of the acts done in furtherance of the
scheme.
L7. On or about July 27, 2020, in the Northern District of lllinois, Eastern
Division, and elsewhere,
CARLOS SMITH,
defendant herein, for the purpose of executing the scheme, knowingly caused to be
transmitted by means of wire communication in interstate commerce certain
writings, signs, signals, and sounds, namely an internet transmission of a PPP loan
application for CLS Financial Services, Inc., processed through Bank A servers
located outside of Illinois, and received by Bank A;
In violation of Title 18, United States Code, Section 1343.
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COUNT T14IO
The SPECIAL JANUARY 2020 GRAND JURY further charges:
1. 
Paragraphs 1-16 of Count One are realleged and incorporated here.
2. 
On or about June 8, 2020, in the Northern District of lllinois, Eastern
Division, and elsewhere,
CARLOS SMITH,
defend.ant herein, for the pu{pose of executing the scheme, knowingly caused. to be
transmitted by means of wire communication in interstate commerce certain
writings, signs, signals, and sounds, namely, an interstate wire transmission of
approximately $L49,900 from the SBA Finance Center, located in Colorado, to the
CLS Financial Services Inc. account at Bank B, which funds represented the proceeds
of an Economic Injury Disaster Loan to CLS Financial Services, fnc.;
In violation of Title l-8, United States Cod.e, Section 1343.
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COUNT THREE
The SPECIAL JANUARY 2020 GRAND JURY further charges:
1. 
Paragraph 1 of Count One is realleged and incorporated here.
2. 
On or about July 27, 2020, in the Northern District of Illinois, Eastern
Division, and elsewhere,
CARLOS SMITH,
defendant herein, knowingly caused fplse statements to be made to Bank A, the
deposits of which were insured by the Federal Deposit Insurance Corporation, with
the intent to influence the actions of Bank A concerning a Paycheck Protection
Program loan application, in that defendant stated:
(a) CLS Financial Services, Inc. had 61 employees and an average monthly
payroll of $108,000;
CLS Financial Services, Inc. was in operation on February L5,2020, and
had employees for whom it paid salaries and payroll taxes or paid
independent contractors, as reported on Form(s) 1099-MISC;
The PPP loan was necessary to support the "ongoing operations" of CLS
Financial Services, Inc.; and
With;n the last 5 years, defendant had not been convicted of or pleaded
guilty to any felony;
when defendant knew that such statements were false;
In violation of Title 18, United States Code, Section LOLA.
(b)
(c)
(d)
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COUNT FOUR
The SPECIAL JANUARY 2020 GRAND ruRY turther charges:
1. 
Paragraphs 1-16 of Count One are realleged and incorporated here.
2. 
On or about October 6,2020, in the Northern District of Illinois, Eastern
Division, and elsewhere,
CARLOS SMITH,
defendant herein, knowingly engaged in a monetary transaction, namely, the deposit
of check number 5009 into an account at Credit Union A, drawn from Bank B and
made payable to Carlos Smith, in the amount of $30,000, which was in and affecting
commerce and involving criminally derived property of a value greater than $l-0,000,
such property having been derived from a specifi,ed unlawful activity, namely wire
fraud, in violation of Title L8, United States Code, Section 1343, as charged in Count
T\vo;
In violation of fitle L8, United States Code, Section 1957.
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FORFEITURE ALLEGATION
The SPECIAL JANUARY 2020 GRAND JURY further alleges:
1. 
Upon conviction of an offense in violation of fitle 18, United States Code,
Sections 1014 and 1343, as set forth in this Indictment, defendant shall forfeit to the
United States of America anI property that constitutes and is derived from proceeds
traceable to the offense, as provided in Title 18, United States Code, Section
e82(a)(2)(A)
2. 
Upon conviction of an offense in violation of Title 18, United States Code,
Section L957, as set forth in this Indictment, defendant shall forfeit to the United
States of America, arny property involved in such offense, and any property traceable
to such property, as provided in fitle 18, United States Code, Section 982(a)(1).
3. 
The property to te forfeited includes, but is not limited to:
A personal money judgment in an amount equal to the proceeds
derived from the offenses in violation of Title 18, United States Code, Sections L0]4
and 1343, estimated to be approximately $421,900; and
b. 
A personal money judgment in an amount equal to the funds
involved in the violation of Title 18, United States Code, Section 1957, estimated to
be approximately $30,000.
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4. 
If any of the property described above, as a result of any act or omission
by a defendant: cannot be located upon the exercise of 4us diligence, has been
transferred or sold to, or deposited with, a third patty, has been placed beyond the
jurisdiction of the Court; has been substantially diminished in value; or has been
commingled with other property which cannot be divided without d.iffisultry, 15.
United States of America shall be entitled to forfeiture of substitute property, as
provided in Title 21, United States Code, Section 853(p).
A TRUE BILL:
FOREPERSON
Signed by Matthew Madden on behalf of the
UNITED STATES ATTORNEY
13
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