SENTENCING MEMORANDUM as to Carlos Smith — USA v. Smith (Dkt. 54)

Record facts

U.S. District Court for the Northern District of Illinois · No. 1:20-cr-00922 · Doc. 54 · 2023-01-05 · Docket on CourtListener

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UNITED STATES DISTRICT COURT 
NORTHERN DISTRICT OF ILLINOIS 
EASTERN DIVISION 
 
UNITED STATES OF AMERICA 
 
 
v. 
 
CARLOS SMITH 
 
 
  No. 20 CR 922 
 
  Judge Manish S. Shah 
 
 
GOVERNMENT’S POSITION PAPER AS TO SENTENCING FACTORS 
The UNITED STATES OF AMERICA, by its attorney, JOHN R. LAUSCH, JR., 
United States Attorney for the Northern District of Illinois, hereby submits its 
position paper as to sentencing factors, and asks this Court to impose a sentence of 
at least 60 months’ imprisonment, along with a period of three years’ supervised 
release and restitution to the victims. 
I. 
BACKGROUND 
Shortly after being released to home confinement as part of his 60-month 
prison term for a prior fraud, defendant Carlos Smith decided it was time to commit 
fraud again. He chose as his first victim a government program run by the U.S. Small 
Business Administration that was designed to provide relief to struggling businesses 
impacted by the Covid-19 pandemic. He submitted his first fraudulent application, 
for an Economic Injury Disaster Loan (“EIDL”) in April 2020, about a month before 
he began his term of supervised release.  
When the funds from that fraudulent loan eventually landed in an account he 
controlled, he used the funds for his lifestyle and for people close to him. Emboldened 
by his success, he then fraudulently sought and obtained a second CARES Act loan, 
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this time through the Paycheck Protection Program (“PPP”). In both applications, 
Smith lied about the condition and performance of his purported business, CLS 
Financial Services, Inc., which did not operate during the year prior to the pandemic, 
when defendant was incarcerated. In the PPP application he also lied about his 
criminal history and submitted fake tax documents. Smith received a total of 
approximately $421,900 for the two loans.  
Each loan was disbursed into a different bank account controlled by Smith. 
When Smith learned that the account with the PPP funds was under review by the 
bank, he quickly moved money out of the account holding the remainder of the EIDL 
funds—including cutting a $30,000 check to himself and depositing it into a separate 
account—to protect and retain the proceeds of his fraud. Fortunately, law 
enforcement was able to seize and recover the remaining PPP funds, which were 
frozen. In total, over the course of approximately five months, Smith cashed and/or 
spent approximately $152,962 of the fraudulently obtained funds.1 
Because of his scheme, his false statements, and his money laundering, 
defendant was charged by indictment with wire fraud, in violation of Title 18, United 
States Code, Section 1343 (Counts One and Two), making a false statement to a 
financial institution, in violation of Title 18, United States Code, Section 1014 (Count 
Three), and money laundering, in violation of Title 18, United States Code, Section 
 
1 Further details of the defendant’s scheme are set forth in the Government’s Version of the 
Offense, which is appended to the PSR. 
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1957 (Count Four). Pursuant to a plea agreement, on June 22, 2022, he pleaded guilty 
to Count One and Count Four of the indictment.  Doc. 44.  
II. 
GUIDELINES CALCULATIONS  
The government agrees with the offense level and criminal history calculations 
in the PSR submitted by the United States Probation Office. With a total offense level 
of 17 and a criminal history category of III, the resulting advisory Guidelines range 
is 30 to 37 months’ imprisonment. PSR ¶ 116. 
III. 
SENTENCING FACTORS AND GOVERNMENT’S 
RECOMMENDATION 
The Sentencing Guidelines provide a starting point and initial benchmark for 
sentencing, Gall v. United States, 552 U.S. 38, 49–50 (2007), and must be considered 
along with all of the factors set forth in Title 18, United States Code, Section 3553(a). 
Considering these factors, the government recommends a sentence of at least 60 
months’ imprisonment, which is substantially above the Guidelines range; a three-
year term of supervised release; and an order of restitution. The government’s 
sentencing recommendation is driven primarily by the defendant’s commission of a 
new fraud scheme so quickly after his prior 60-month prison term, as well as his 
brazen exploitation of relief fund programs during a once-in-a-lifetime pandemic. 
Given these extraordinarily aggravating circumstances, such a sentence is sufficient, 
but not greater than necessary, to reflect the seriousness of defendant’s offense 
conduct and criminal history, promote respect for the law, provide just punishment, 
and afford adequate deterrence.  
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A. 
The Nature and Circumstances of the Offense  
1. The Exploitation of Pandemic Relief Funds 
Smith took advantage of CARES Act loan programs, which were intended to 
provide relief to struggling businesses at the beginning of the Covid-19 pandemic. 
Instead of allowing a business experiencing a downturn to meet its expenses and 
payroll, Smith used the funds to support his own lifestyle. After the success of his 
fraudulent EIDL application, Smith did not stop. He followed it up with the PPP loan, 
for which he was willing to concoct more lies. In addition to his lies about his 
purported business’s operations, he lied about his lack of criminal convictions or 
imprisonment during the prior five years, and he submitted phony tax documents to 
support the existence of his bogus “employees.”  
When the bank froze the account holding the PPP funds, Smith went on an 
approximately two-week spree to protect his illicit proceeds from the EIDL. During 
the first two weeks of October 2020, he quickly transferred money, wrote checks, and 
spent the remainder of the EIDL funds. Had the bank not frozen the PPP funds, he 
likely would have spent and transferred the remainder of that money as well.  
2.  Commission of the Offense While in BOP Custody and on Supervised 
Release. 
 
Defendant’s crime began while he was in BOP custody and continued during 
his term of supervised release as part of his sentence for an earlier tax-refund fraud 
in United States v. Carlos Smith, No. 15 CR 211 (N.D. Ill. 2015) (Alonso, J.). The 
conduct underlying that case, which is detailed in the Government’s Version of the 
Offense, involved the same purported business used in this scheme, CLS Financial 
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Services. In his earlier scheme, the company purported to offer tax preparation 
services, and Smith used it to obtain personal identifying information for taxpayers. 
Smith then filed false federal income tax returns, set up bank accounts in the 
taxpayers’ names, and collected their refunds for himself.  
In January 2017, Judge Alonso sentenced Smith to a total of 60 months’ 
imprisonment, along with two years’ supervised release, following his convictions for 
theft of government funds and aggravated identity theft. After serving the majority 
of the 60-month term in prison, on November 14, 2019, Smith was transferred into a 
halfway house. Two months later, on January 13, 2020, he was placed on home 
confinement. By April 2020, Smith had submitted his first fraudulent loan 
application, for an EIDL.  
Smith was officially released from BOP custody on May 11, 2020, and began 
serving his two-year term of supervised release. The funds from his fraudulent EIDL 
application were disbursed shortly thereafter, in June 2020. Smith then submitted 
his fraudulent PPP application in late July 2020, and the funds for the PPP loan were 
disbursed in September 2020—within approximately six months of the 
commencement of his term of supervised release. 
Approximately one month after the indictment was returned in this case, a 
special report noting his non-compliance was filed in 15 CR 211 (Dkt. # 95). PSR ¶ 48. 
However, no summons was issued, and Smiths’ term of supervised release expired on 
May 10, 2022. PSR ¶ 50. Based on his commission of the offense conduct to which he 
has admitted (a Grade B violation), and with a Criminal History Category of II at the 
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time of his original sentencing in 15 CR 211, he would have faced a Guidelines range 
of at least 6 to 12 months’ imprisonment. U.S.S.G. § 7B1.4(a).2 
B. 
The History and Characteristics of the Defendant 
The defendant is 58 years old. He has committed some form of fraud multiple 
times over the past 23 years. His first criminal conviction, which stemmed from his 
attempt to pass a forged check, was at the age of 35. PSR ¶ 45. He followed that up 
at age 43, when he again tried to pass multiple fraudulent checks. PSR ¶ 46. For both 
crimes, he received sentences of probation. Id. ¶¶ 45-46. By 50, Smith had committed 
his most serious offense—the federal tax refund fraud involving the use of multiple 
taxpayers’ identities without their consent—and received a 60-month term of 
imprisonment. PSR ¶ 48. Remarkably, this pattern of fraud began when defendant 
was well into his adulthood, and it has now continued even after facing serious 
consequences.  
There is nothing in defendant’s history that softens or explains his conduct. 
Unlike many defendants who come before this Court, the defendant had a self-
reported “good childhood,” with strong family relationships, financial stability, and 
no reported abuse or neglect. PSR ¶¶ 61-62. He did well in school and served his 
country in the United States Air Force. PSR ¶¶ 64-65. Nothing about defendant’s 
background suggests that he resorted to crime out of financial desperation, addiction, 
lack of access to mental health care or therapy, or any reason other than opportunistic 
 
2 The Guidelines range could have been even greater if he was found to have violated Title 
18, United States Code, Section 1014 (with which he was charged but did not plead guilty), a 
Grade A felony under the Guidelines. U.S.S.G. § 7B1.1(a)(1)(B). The Guidelines term for such 
a violation is 15 to 21 months’ imprisonment. Id. § 7B1.4(a). 
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greed. Cf. United States v. Anderson, 517 F.3d 953, 966 (7th Cir. 2008) (“[w]hile many 
criminals commit crimes from lack of opportunity and desperation, [defendant] acted 
out of greed”). 
Defendant does have various reported health issues, and, due to his age, prison 
likely will be harder for him. PSR ¶¶ 74-80. However, none of his reported conditions 
are beyond the capacity of the Bureau of Prisons to manage—as they did, for most if 
not all of them, when defendant was previously incarcerated.  
C. 
The Need for Just Punishment, to Promote Respect for the Law,  
and to Afford Adequate Deterrence 
The defendant’s swift and brazen recidivism following his prior 60-month 
prison term warrants a substantial term of imprisonment. And, in addition to 
specifically deterring the defendant, it is imperative that a strong message of 
deterrence is received by other would-be offenders who seek to unlawfully profit from 
the Covid-19 pandemic. The government submits that the Guidelines range does not 
adequately account for these aggravating factors, and that a term of imprisonment of 
at least the length of his prior sentence is necessary to advance the goals of 
sentencing, including promoting respect for the law.  
As this case illustrates, the Covid-19 pandemic was (and still is) a lucrative 
opportunity for crooks. Both public and private actors have had to devote substantial, 
unprecedented resources to address the pandemic’s many effects on our lives. With 
such resources on the table, there will always be individuals, like defendant, who see 
an opportunity for unearned lucre. What is so remarkable about the defendant is that 
he saw that opportunity and exploited it while he was still in BOP custody. Those 
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circumstances make plain the need to specifically deter him from further crimes. But 
the sentence also must afford adequate general deterrence to other would-be 
criminals. See  United States v. Heffernan, 43 F.3d 1144, 1149 (7th Cir. 1994) 
(“Considerations of (general) deterrence argue for punishing more heavily those 
offenses that either are lucrative or are difficult to detect and punish, since both 
attributes go to increase the expected benefits of a crime and hence the punishment 
required to deter it.”); see also United States v. Brown, 880 F.3d 399, 405 (7th Cir. 
2018) (“endors[ing] the idea that white-collar criminals act rationally, calculating and 
comparing the risks and the rewards before deciding whether to engage in criminal 
activity. They are, therefore, prime candidates for general deterrence”) (internal 
quotation marks and citation omitted).  
Here, a sentence of at least 60 months’ imprisonment is sufficient, but not 
greater than necessary, to accomplish these goals. Such a sentence would account for 
defendant’s recent, similar criminal history; his commission of the offense while in 
custody and then on supervised release (for which he suffered no consequence in the 
earlier case); and the defendant’s extraordinary exploitation of government programs 
providing relief funds during an unprecedented global pandemic. These are all 
unusually aggravating factors that the Guidelines simply do not account for, and they 
all point to the need for a sentence substantially above the Guidelines range.  
D. 
Supervised Release 
In addition to the term of imprisonment, the government recommends a three-
year period of supervised release. A substantial period of supervised release will be 
an important component of the defendant’s sentence, particularly in light of 
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defendant’s prior conduct while on supervised release. The purposes of a term of 
supervised release include “rehabilitation, deterrence, training and treatment, 
protection of the public, and reduction of recidivism.” United States v. Kappes, 782 
F.3d 828, 836 (7th Cir. 2015). In addition to advancing these goals, the conditions 
should be specific and appropriately tailored to the defendant. Id. at 839; United 
States v. Strobel, 987 F.3d 743, 748 (7th Cir. 2021). For the reasons below, the 
conditions recommended by the Probation Office meet these goals for this defendant. 
The government agrees with the four mandatory conditions of supervised 
release set forth by the Probation Office. PSR ¶ 120. The government also agrees with 
the discretionary and special conditions they recommend, which are (1) necessary to 
facilitate supervision by the Probation Office; (2) necessary to ensure he meets the 
financial obligations imposed in the judgment, including providing restitution to 
victims; (3) necessary to promote his respect for the law, deter him from committing 
future crimes, and to protect the public from further crimes by him; (4) necessary in 
light of his history of alcohol abuse; and (5) necessary to facilitate his reintegration 
as a law-abiding member of society.   
The government recommends an addition to one of the proposed conditions: 
discretionary condition #5, which the government proposes should additionally 
restrict defendant’s occupation, business, or profession as follows: “You shall not 
conduct any business under CLS Financial Services, Inc., and you shall not open or 
access bank accounts held in the name of any entity.” The government agrees that 
the restriction in the first clause is necessary in light of the defendant’s repeated use 
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of an entity (CLS Financial Services, Inc.) as part of this scheme and his prior crimes. 
The restriction in the second clause further assures that he will not simply use the 
bank accounts of a different entity to perpetrate a similar crime. Both restrictions 
bear a “reasonably direct relationship” to the offending conduct and will protect the 
public from further crimes by the defendant. 
E. 
Restitution 
Pursuant to Title 18, United States Code, Section 3663A, the Court must order 
defendant to make full restitution to victims in the total amount of $421,900. As noted 
in the plea agreement, the government will recommend that any of the funds that 
were administratively forfeited be applied toward the restitution judgment.  
IV. 
CONCLUSION 
For the reasons stated here, the government respectfully requests that this 
Court impose a sentence of at least 60 months’ imprisonment, a period of three years’ 
supervised release, and restitution to the victims. 
 
 
 
 
 
 
 
 
 
Respectfully submitted, 
 
 
 
 
 
 
JOHN R. LAUSCH, JR. 
 
 
 
 
 
 
UNITED STATES ATTORNEY 
 
 
 
 
 
 
By: 
/s/ L. Heidi Manschreck     
 
 
 
 
 
 
 
L. HEIDI MANSCHRECK  
 
 
 
 
 
 
Assistant United States Attorney 
 
 
 
 
 
 
United States Attorney’s Office 
 
 
 
 
 
 
219 South Dearborn, 5th Floor 
 
 
 
 
 
 
Chicago, Illinois 60604 
 
 
 
 
 
 
(312) 469-6205 
 
 
 
 
 
 
heidi.manschreck2@usdoj.gov 
 
Dated: January 5, 2023 
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