Court filing
Sentencing Transcript — U.S. v. Martinez (July 27, 2023)
Filed August 29, 2023 in U.S. v. Martinez; one of 32 filings from this case.
Record facts
| Court | U.S. District Court for the Southern District of New York |
|---|---|
| Filed | 2023-08-29 |
U.S. District Court for the Southern District of New York · No. 1:22-cr-00251-LJL · Doc. 85 · 2023-08-29 · Docket on CourtListener
Full text
1
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------x
UNITED STATES OF AMERICA,
v. 22 Cr. 251 (LJL)
RAFAEL MARTINEZ,
Sentence
Defendant.
------------------------------x
New York, N.Y.
July 27, 2023
2:05 p.m.
Before:
HON. LEWIS J. LIMAN,
District Judge
APPEARANCES
DAMIAN WILLIAMS
United States Attorney for the
Southern District of New York
MICAH FERGENSON
KATHERINE REILLY
STEVEN JOHN KOCHEVAR
Assistant United States Attorneys
MORVILLO ABRAMOWITZ GRAND IASON & ANELLO P.C.
Attorneys for Defendant
BY: MICHAEL S. SCHACHTER
RANDALL W. JACKSON
TELEMACHUS P. KASULIS
ELKAN ABRAMOVITZ
1
14:05:20:11
14:05:20:12
2
14:05:20:14
14:05:20:15
3
14:05:20:17
14:05:20:18
4
14:05:20:20
14:05:20:21
5
14:05:20:23
14:05:20:24
6
14:05:20:26
14:05:20:27
7
14:05:20:29
14:05:21:00
8
14:05:21:02
14:05:21:03
9
14:05:21:05
14:05:21:06
10
14:05:21:08
14:05:21:09
11
14:05:21:11
14:05:21:12
12
14:05:21:14
14:05:21:15
13
14:05:21:17
14:05:21:20
14
14:05:21:21
14:05:21:23
15
14:05:21:24
14:05:21:26
16
14:05:21:27
14:05:21:29
17
14:05:22:00
14:05:22:03
18
14:05:22:02
14:05:22:03
19
14:05:22:05
14:05:22:06
20
14:05:22:08
14:05:22:09
21
14:05:22:15
14:05:22:17
22
14:05:22:18
23
14:05:22:26
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 1 of 63
2
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
(Case called)
MR. FERGENSON: Good afternoon, your Honor. Micah
Fergenson, Kate Reilly, and Steven Kochevar, for the
government.
THE COURT: Good afternoon.
The defense.
MR. SCHACHTER: Good afternoon, your Honor. Michael
Schachter, Randall Jackson, Tim Kasulis, and Elkan Abramovitz
on behalf of Mr. Martinez.
THE COURT: Good afternoon.
Good afternoon, Mr. Martinez.
All right. So we're here today for the sentencing of
Rafael Martinez. On March 23, 2023, Mr. Martinez appeared
before me and pleaded guilty to Count One of the information
charging him with conspiracy to commit wire fraud, in violation
of 18 U.S.C. Section 371. He did so pursuant to a written plea
agreement with the government dated March 15, 2023.
In preparation for today's proceeding, I have reviewed
a lot of materials. I've reviewed the plea agreement and the
transcript of the plea proceedings. I've also reviewed and
have in front of me the presentence report, which is dated
May 19, 2023, and was revised on June 15, 2023, along with a
recommendation and addendum to the report.
I've also received the following additional
submissions:
1
14:05:48:12
2
14:05:55:16
3
4
5
14:06:02:01
6
14:06:04:29
7
14:06:06:13
8
9
10
14:06:13:28
11
14:06:14:20
12
14:06:15:25
13
14
15
16
17
18
14:06:43:08
19
20
21
22
23
24
14:07:10:15
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 2 of 63
3
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
Mr. Martinez's 36-page sentencing memorandum, which is
dated June 27, 2023. The attachments and exhibits to that
memorandum, which are Exhibits A to KK and include video
exhibits and Excel spreadsheets. It also includes letters
among the exhibits, letters from Mr. Martinez's daughters,
sisters, clients, neighbors, friends, members of the clergy, a
godson who speak to his charitable works, his contributions to
the community, his involvement with the church, his
volunteering at the public school, the after-school choir
program or with feeding the homeless, his contribution to the
local hospital, his support for organizations in the Dominican
Republic, his work on behalf of minority enterprises, and the
impact on him of the loss of his wife.
I've further received and reviewed a supplemental
defense submission with an additional letter dated July 3,
2023, from the founder of the after-school chorister program
that Mr. Martinez supported.
And I've received a further supplemental submission
from the defendant dated July 10, 2023, with a letter from the
defendant's brother.
I've also received and reviewed the government's
submission dated July 5, 2023, with nine exhibits.
I also received and have a consent order of
forfeiture.
Let me ask the government, first, whether the
14:08:52:15
1
14:07:15:01
2
3
4
5
6
7
8
9
10
11
12
13
14
14:08:15:03
15
16
17
18
14:08:29:20
19
20
21
14:08:37:16
22
23
14:08:45:28
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 3 of 63
4
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
government has received each of these submissions and whether
the government is aware of any additional submissions of which
I should be aware?
MR. FERGENSON: We have received them, and we're not
aware of any additional, your Honor.
THE COURT: Mr. Schachter, should I be addressing
myself to you or to one of the other lawyers?
MR. SCHACHTER: Yes, please, your Honor.
THE COURT: Have you received and reviewed each of
those submissions?
MR. SCHACHTER: Yes, your Honor.
THE COURT: Are there any additional submissions which
I should be aware?
MR. SCHACHTER: No, your Honor.
THE COURT: All right. Let me now turn to the
presentence report, and I'm cognizant that there may be issues
of fact that the parties want to raise. I have some issues ——
questions with respect to the facts that I may have for the
parties, but let's do first things first.
Mr. Schachter, have you received and read the
presentence report?
MR. SCHACHTER: Yes, your Honor.
THE COURT: Have you discussed it with your client?
MR. SCHACHTER: Yes, your Honor.
THE COURT: And Mr. Martinez, have you read the
14:09:49:12
1
2
3
4
14:09:02:18
5
6
14:09:06:25
7
8
14:09:10:13
9
14:09:12:29
10
11
14:09:16:05
12
14:09:16:27
13
14
14:09:20:27
15
14:09:22:01
16
17
18
19
20
14:09:40:27
21
22
14:09:45:25
23
14:09:46:08
24
14:09:47:29
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 4 of 63
5
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
presentence report?
THE DEFENDANT: Yes, your Honor.
THE COURT: And have you discussed it with your
lawyers?
THE DEFENDANT: Yes, your Honor.
THE COURT: Have you had the opportunity to go over
with defense counsel any errors or anything else that should be
taken up with the Court?
THE DEFENDANT: Yes, your Honor.
THE COURT: So, Mr. Schachter, are there any
unresolved factual issues to be taken up with the report?
MR. SCHACHTER: I don't believe so, your Honor.
THE COURT: All right. Let me ask, Mr. Fergenson,
have you received and read the presentence report?
MR. FERGENSON: Yes, your Honor.
THE COURT: Are there any issues to be taken up with
the Court?
MR. FERGENSON: No, your Honor.
THE COURT: So hearing no objections, the Court adopts
the factual findings in the presentence report, and the
presentence report will be made part of the record in this
matter and placed under seal. If an appeal is taken, counsel
on appeal may have access to the sealed report without further
application to the Court.
Let me now turn to the sentencing guidelines.
14:10:51:03
1
2
14:09:52:26
3
14:09:53:09
4
5
14:09:56:19
6
14:09:57:18
7
8
9
14:10:07:19
10
14:10:08:08
11
12
14:10:13:06
13
14:10:15:05
14
15
14:10:21:12
16
14:10:22:22
17
18
14:10:26:14
19
14:10:26:27
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 5 of 63
6
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
Although the Court is no longer required to follow the
sentencing guidelines, I am still required to consider the
applicable guidelines in imposing sentence. To do so, it is
necessary that the Court accurately calculate the guideline
sentencing range.
The plea agreement here calculates a guidelines range
of 108 to 135 months of imprisonment based on an applicable
guidelines offense level of 31 and a criminal history category
of I, but because the statutory maximum for the crime to which
the defendant has pled guilty is five years, or 60 months, the
applicable guideline sentence is 60 months. Probation agrees.
I have independently calculated the guidelines, and I too
agree.
The November 1, 2021, guideline manual applies to the
case. Pursuant to that manual, the adjusted offense level is
31, the criminal history category is I, the guidelines range is
108 to 135 months of imprisonment, but because the statutory
maximum is 60 months, the applicable guideline sentence is 60
months.
The next subject I need to cover is departures, which
is to say within —— whether there's a basis within the
sentencing guidelines framework for there to be a departure.
Had the guidelines range been 108 to 135 months and had that
been the applicable guidelines range without consideration of
the maximum sentence, I might well believe that there would be
1
2
3
4
5
6
14:11:10:06
7
8
9
10
11
12
13
14
14:11:42:17
15
16
17
18
19
20
14:12:07:00
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 6 of 63
7
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
a basis for a departure on the grounds that the loss overstated
the gravity of the crime, but since the statutory maximum
governs the applicable guidelines offense —— it governs the
applicable guidelines sentence, I find that there is no
departure available as a matter of law. I'll address variances
and the defense's request that there be a variance when it
comes time to sentence.
All right. Let me hear from the government with
respect to sentence.
MR. FERGENSON: Thank you, your Honor. I won't rehash
in depth the written submission that we've already put in, but
I will make a few points.
I think the place to start, your Honor, is to think
back to April 2020 when this city was at the epicenter of a
national crisis related to COVID-19 and people saw their lives
upended, their businesses being shuttered, their families and
family lives in danger and disarray. And what the defendant
saw in April 2020 was an opportunity to take advantage of a
national crisis to enrich himself enormously. Judge
Engelmayer, I know in several of these PPP fraud cases, has
described this behavior as unpatriotic, and I think there's
really something to that here. And it's even more striking in
this case, your Honor, where the defendant not only obtained a
fraudulent PPP loan for himself via his company but then became
an actual PPP lender.
1
2
3
4
5
6
7
8
14:13:07:20
9
10
14:13:16:03
11
12
13
14:13:25:06
14
15
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 7 of 63
8
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
I want to pause on that briefly because it's kind of
stunning, your Honor. In April 2020, the defendant obtains,
fraudulently —— he fabricates documents —— a loan over $200,000
via PPP for his company. He does that simultaneously while
he's applying to become an arbiter of PPP loans, the one who
actually decides who can —— who's eligible to get the PPP loans
and issues them.
Now, that would be pretty stunning in itself and, I
think, would call for a serious sentence and would be a serious
crime, but it wasn't just that his PPP loan was fraudulent at
the same time he was trying to become a PPP lender, both were
fraudulent. It was totally illegitimate for him to become a
PPP lender. He lied in those applications. It's not just he
lied to a bank to get his own PPP loan. He lied to the SBA, he
lied to what we call "the company" in the complaint to obtain
$100 million, and then he lied to the Federal Reserve holding
himself out as a legitimate PPP lender and not following the
proper procedures with obtaining Fed funds to obtain over
$800 million. It's a stunning fraud, your Honor.
THE COURT: You said to obtain over $800 million?
MR. FERGENSON: Via the fed's liquidity facility.
THE COURT: Got it.
MR. FERGENSON: And in the course of the fraud, he
committed brazen acts of dishonesty and lies. He fabricated
documents relating to his business, financial statements, IRS
1
14:14:42:19
2
3
4
5
6
7
8
14:15:19:26
9
10
11
12
13
14
15
16
17
18
19
20
14:16:16:03
21
14:16:21:11
22
14:16:23:21
23
14:16:27:20
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 8 of 63
9
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
forms, forged his accountant's signature. That's close to as
bad as it gets in business crimes, your Honor. And then as a
lender, as a PPP lender, he hampered the proper administration
of that program. And I'll touch more on some of these points
in a moment.
But I want to be clear about one thing, which is that
it's clear why he did all this. It was to get rich. He buys a
$10 million villa in the Dominican Republic. He joins a
chartered jet service, private jets. He buys a mansion in New
Jersey. The PSR's description of it early on in the PSR is
lengthy because it really is a mansion. And he also buys
numerous luxury vehicles. It's classic fraud. He lied out of
greed and he used that for lavish, lavish personal benefits for
himself.
I'll briefly respond to a couple other points that the
defense raised in their submission, your Honor.
THE COURT: Let me highlight a couple of things also
that it would be helpful for you to respond to or elaborate on.
Paragraph 20 of the presentence report references, and
I've now found, that the defendant pledged as collateral to the
Federal Reserve loans that had not yet been issued and created
the appearance of a functioning loan underwriting apparatus at
MBE Capital which was, in fact, totally unqualified to
underwrite loans. It would be helpful if you could elaborate
on that. There is an issue that's been raised by the parties.
1
2
3
4
5
6
14:17:03:21
7
8
9
10
11
12
13
14
15
14:17:50:25
16
17
14:17:56:18
18
19
14:18:06:03
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 9 of 63
10
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
There's a footnote in Mr. Schachter's brief with respect to the
way in which the loans were collateralized that would be
helpful for me to understand.
You also in your papers made reference to a
misrepresentation that was made at a later point in time, and
it would be helpful for you to walk through the evidence with
respect to that. And then it also would be helpful for you to
walk through whether there's any basis for me to conclude that
Mr. Martinez, having fraudulently obtained the right to become
a PPP lender, to take your words, hampered the administration
of the program or did something —— anything other than what the
program was intended to do, which was to provide loans for
enterprises to continue to employ their employees.
MR. FERGENSON: Yes, your Honor. So ——
THE COURT: There may be other things, but those are
some of the things that are on my mind, and I'm sure
Mr. Schachter will be addressing them also.
MR. FERGENSON: Understood, your Honor. Just to take
the first point first relating to the liquidity facility and
the proper process for obtaining credit by pledging loans to
the Fed, the defense had a footnote about it in their
submission; we had a footnote in our submission. We think it's
clear that the process should have worked this way: A lender
issues a PPP loan. Once they've issued that loan, they can ——
THE COURT: Is that supposed to be with their capital,
14:20:33:13
1
2
3
4
14:18:52:04
5
6
7
8
9
10
11
12
13
14
14:19:46:26
15
14:19:48:24
16
17
18
14:19:56:15
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 10 of 63
11
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
is that right?
MR. FERGENSON: Correct, your Honor.
THE COURT: But then if the loan gets forgiven, what
happens?
MR. FERGENSON: I think it's just once the loan is
disbursed and funded, finalized, the lender could then pledge
that disbursed loan to the Fed, which the Fed would then hold
as collateral in order to send additional funds to the lender.
That's not what happened with MBE, at least in many instances.
They were putting up loans as collateral for the Fed that had
not been funded, and then they were using the money they got
from the Fed to fund the loans. That's just one of, I would
submit —— and I'll address this perhaps as the third point ——
but I think that's one of the hampering acts, as you might call
them.
THE COURT: And maybe it's obvious, but it would be
helpful to hear you elaborate on why, in your view, that
hampers the program.
MR. FERGENSON: I think —— so as we note in the
submission, ultimately, they offer more loans than they ever
actually fulfill. So I think —— I don't want to get too out of
my skis on the fed's views, your Honor, but I think it relates
to sort of systemic risk in the program, where they wanted to
have at least some kind of check on the way they're sending
money out the door. Granted, there was a national crisis, and
1
2
14:20:36:28
3
14:20:37:21
4
5
14:20:44:01
6
7
8
9
10
11
12
13
14
15
16
14:21:49:03
17
18
19
14:21:58:13
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 11 of 63
12
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
the point of it is to get money out the door.
I think there was supposed to be some kind of check
where lenders who are proven to be able to issue loans and fund
them properly can then come back, pledge those loans to the Fed
who will hold them as collateral to issue additional money.
It's some kind of check where people aren't just, you know,
collecting, unconstrained entirely, hundreds of millions of
dollars in government funds. And I think that's particularly
important when you have a company like MBE that was not
actually qualified to be a PPP lender. It goes to the systemic
risk that the defendant's behavior put into this very important
program that people were depending on for their livelihoods.
To turn to —— unless your Honor has ——
THE COURT: Mr. Schachter on that point argues that
MBE actually was appointed to do business with the government
at an earlier period of time and that it was qualified.
MR. FERGENSON: I would respectfully disagree, your
Honor. The facts as the government understands them at the
time he became a PPP lender is that the defendant was basically
a one-man shop. Like, maybe he had a few employees. His
payroll at that time was negligible and leading up to that
time, and to think that he somehow qualified to issue hundreds
of millions of dollars to thousands of applicants is absurd.
I would also note, your Honor —— and this was a point
I was going to turn to —— it wasn't just with the COVID program
1
2
14:22:37:26
3
4
5
6
7
8
9
10
11
12
13
14:23:30:06
14
14:23:33:11
15
16
17
14:23:50:01
18
19
20
21
22
23
24
14:24:31:12
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 12 of 63
13
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
that the defendant is submitting fraudulent financial
statements, including to government agencies. It goes back at
least to March 2019 when he's using these just, you know,
fraudulent purportedly accountant-reviewed financial
statements, and he submits some of those to Export-Import Bank
of the United States as part of an application even before
COVID.
Your Honor also asked about a misrepresentation at a
later point in time that we reference in our submission. I
take it your Honor's referring to the 2020 financial
statements?
THE COURT: That is what I am referring to.
MR. FERGENSON: So it appears, based on email
communications, that the defendant sends purported financial
statements, supposedly for the year 2020, that are essentially
identical of the fraudulent 2018 financial statements, except
these 2020 statements now say not only were they reviewed by
the tax preparer's firm, which was false for both 2018, for
2019, for 2020 —— she never reviewed any of them —— but in
these 2020 ones, not only were they reviewed, but they were
also audited. And the numbers are basically —— I believe
they're identical to 2018 almost. Those are clearly
fraudulent, and he's engaging in that conduct. You know, the
lies didn't just stop at the time of the applications. I think
that is a clear indication that he continued running his
1
2
3
4
5
6
7
8
14:25:07:08
9
10
11
12
14:25:21:03
13
14:25:23:06
14
15
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 13 of 63
14
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
business as if there's no difference between the truth and a
lie.
And these financial statements in particular, your
Honor, I think, are —— an important point to focus on is the
relation they had with his tax records. So in these years he
has these fraudulent financial statements that he's sharing
with potential business partners, including the Export-Import
Bank of the United States, seemingly also, we describe in our
submission, in relation to one of his capital partners, same
type of fraudulent financial statements that he sends to the
SBA, to the company in order to do this massive PPP scam.
And it's to potential business partners that his
financial statements show profits of several million dollars,
5 million, $7 million. But based on the records from his tax
preparer, he's claiming losses for MBE in those years to the
IRS. And that's significant because he shows his profits to
his potential business partners, or purported profits, and then
he hides them from the IRS. And it's significant because the
way MBE is structured, those losses will carry through to
Mr. Martinez's individual tax liability. So he essentially
gets to hide his income from the United States.
Your Honor, if you'll forgive me, I forget the third
point.
(Counsel confer)
MR. FERGENSON: Ms. Reilly reminds me. It relates to
14:28:19:06
1
2
3
14:26:27:02
4
5
6
7
8
9
10
11
12
14:27:13:06
13
14
15
16
17
18
19
20
21
22
14:28:10:27
23
24
14:28:14:24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 14 of 63
15
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
the administration of the lender program. We address this in
our submission, and I want to at least make a prefatory remark
about the points we made, which is that because the defendant's
fraud was in many ways systemic and so vast, it is difficult to
quantify it and analyze it with specificity. It would be such
an enormous undertaking.
So we've tried to give you some bullet points to show
and reflect that this was (1) an extremely risky and dangerous
endeavor; it was a systemic risk that he created; and (2) there
were, in fact, people harmed by it because he was totally
ill-equipped to undertake this lending program at the scale
that he attempted to do it.
So just to go through some of the bullets on page 10
of our submission, we interviewed at least one former employee
of MBE who said that MBE was quickly overwhelmed, they had ——
they were scrambling, and that ——
THE COURT: Let me —— instead of having you go through
each of them, I'll let you do that.
On the last one, you say the government estimates that
MBE issued in excess of $17 million in PPP loans to entities
that were ineligible for PPP funding in light of the provisions
of the CARES Act. What's missing from that representation is
any sense of comparative performance of MBE with respect to
others in the program. I think it's known, and I could
probably take judicial notice, that there were a number of
1
2
3
4
5
6
7
14:29:02:17
8
9
10
11
12
13
14:29:36:27
14
15
16
17
14:30:01:20
18
19
14:30:08:06
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 15 of 63
16
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
entities that were ineligible who received PPP money. So it
would not be anything exceptional that there were some in
Mr. Martinez's cadre of clients.
What am I to make of the 17 million, if anything?
MR. FERGENSON: May we just have a moment, your Honor?
THE COURT: Yes.
(Counsel confer)
MR. FERGENSON: Thank you, your Honor.
I think it's a fair question, your Honor, and it is
difficult to quantify exactly how these would compare with
other lenders. I mean, one point to note is that this is the
first prosecution related to lender fraud. So we're, in a way,
at the forefront of PPP fraud in this case.
THE COURT: Yes, but you do know that there was
borrower fraud, and so there must be some ability from the
incidence of borrower fraud to form some judgment.
MR. FERGENSON: I think there's no doubt, your Honor,
and I guess the point to make is that there's no question there
was PPP fraud, borrower fraud, and from many institutions. I
think this is meant to be reflective of the failures at MBE in
particular, and part of, we submit, what leads to these
borrower frauds at MBE is the total insufficiency of their
lending program. And even putting aside the fraud, I think the
point that at the very beginning, when funds are needed most,
when people are most desperate is when MBE is least able to
1
2
3
4
14:31:04:17
5
14:31:10:20
6
14:31:12:11
7
14:31:30:22
8
14:31:31:12
9
14:31:36:12
10
11
12
13
14
14:31:57:03
15
16
17
14:32:09:20
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 16 of 63
17
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
help them.
I wanted to address one other point, your Honor, which
is that the claims of helping small businesses as the principal
driver for Mr. Martinez's conduct, that claim just rings
hollow, and I think that's for a few reasons. One is just what
did he do? He got enormously rich, tens of millions of
dollars, and then lived an extremely lavish life.
THE COURT: Is that out of the funds that the SBA
pays? Is that how the ——
MR. FERGENSON: Correct, your Honor. This is SBA fees
that go to MBE and principally to Mr. Martinez.
The other point is that it's contradicted by the way
Mr. Martinez treats a minority-owned small business, the tax
preparer's firm. He totally takes advantage of that small
business, victimizes his accountant, all in pursuit of
obtaining these huge sums of money.
And then the last point is just what I was talking
about before, which is there's no possible way that the
defendant actually thought he was equipped, essentially a
one-man shop, to disburse hundreds of millions of dollars to
thousands of needy people at the height of a national
emergency. There's just no way.
The defense submits that the conduct wasn't that bad
because there's no predatory motive. I think what they mean is
that this case is a classic fraud like the vast majority that
1
2
14:33:24:18
3
4
5
6
7
8
14:33:54:16
9
10
14:33:59:28
11
12
14:34:06:21
13
14
15
16
17
14:34:30:29
18
19
20
21
22
23
14:34:59:23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 17 of 63
18
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
we see in this courthouse, and it was an extremely serious one
where the defendant put his own interests above others out of
greed, and he got the money through lies. It was classic
fraud. But at the time of a national emergency, like Judge
Engelmayer says at these sentencings, it is also unpatriotic.
And just to end on one final point, your Honor, which
is that, as I mentioned, there haven't been prosecutions
related to PPP lenders and this is, as of now, a unique case,
and for that reason I think deterrence is particularly
important here. When you place a government program,
particularly a government program stood up overnight to try and
address a burgeoning crisis, and when you take advantage of
that and place it into systemic risk, not just the program but
the people depending on the program, when you put yourself and
your own greed above them, that deserves a substantial sentence
for both specific and general deterrence.
And for those reasons, your Honor, we would submit
that a guidelines sentence is appropriate in this case.
THE COURT: I'll hear from Mr. Schachter.
I'm not sure, by the way, Mr. Fergenson, that, with
all due respect to Judge Engelmayer —— and I have a lot of
respect for Judge Engelmayer —— that I'm going to buy on to the
language of "unpatriotic." There are, in fact, a lot of people
who appear in this court who engage in pretty bad crimes. I'm
not sure I'd label people patriotic or not patriotic, but I'm
1
2
3
4
5
6
14:35:44:02
7
8
9
10
11
12
13
14
15
16
17
14:36:33:22
18
19
14:36:39:04
20
14:36:40:12
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 18 of 63
19
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
not sure that much is —— whether I call the conduct patriotic
or unpatriotic makes a lot of difference.
MR. FERGENSON: Fair enough, your Honor.
THE COURT: OK. Mr. Schachter, let me hear from you.
MR. SCHACHTER: Thank you, your Honor.
Your Honor, we are here because Mr. Martinez did the
very difficult step of accepting responsibility for what he
did. He did that publicly, for all the public to see, for his
family, and for his friends to see. He unquestionably provided
false information to the SBA as part of the loan process and as
part of the application to become a nonbank lender.
I think that the Court's questions, which I want to
start by addressing, go to the severity, the magnitude of it.
And while false information was provided to obtain the status
of being a nonbank lender, the government is wrong that he then
went on to hamper the administration of the program, that he
was totally unqualified, and that he did anything other than
work as hard as he could to administer the program as he was
supposed to.
I'd like to start by the first question about
hampering the administration of the program. I have had
discussions with the government about what was intended with
respect to the PPPLF program, and with due respect to the
government and to whoever they're speaking to at the Fed, they
are incorrect.
1
2
3
14:37:19:01
4
14:37:20:07
5
14:37:24:10
6
14:37:29:05
7
8
9
10
11
12
14:38:03:00
13
14
15
16
17
18
19
20
14:38:44:00
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 19 of 63
20
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
I'd like to hand up a screenshot from an instruction
that the —— there's a video, we cited to it, where the Federal
Reserve has just announced the PPPLF program, and they are
explaining to the public, to lenders, exactly how it is
supposed to work. And so when the government says that what
Mr. Martinez was supposed to do, what MBE was supposed to do,
was first extend a bunch of loans on their own and then receive
the money from the Fed, that is very different than what the
Federal Reserve itself was telling lenders, nonbank lenders.
May I hand this up, your Honor?
THE COURT: You may.
Have you shown a copy to Mr. Fergenson?
MR. FERGENSON: We emailed it to the government on
June the 15th, and I have copies for Mr. Fergenson as well.
THE COURT: OK.
MR. SCHACHTER: Your Honor, if the Court were to
review the video starting at 11 minutes 40 seconds, you'll see
that the representative of the Federal Reserve says exactly
what is supposed to happen, which is ——
THE COURT: Mr. Schachter, I know it's a case
everybody feels passionate about. Maybe put the microphone a
little bit lower or speak with a little less volume.
MR. SCHACHTER: I apologize, your Honor.
As you can see, in explaining how the program's
supposed to work, the small business goes to the lender to get
1
14:39:09:12
2
3
4
5
6
7
8
9
10
14:39:49:24
11
14:39:51:15
12
14:39:52:07
13
14:39:54:04
14
15
14:39:58:22
16
14:40:19:27
17
18
19
20
14:40:32:13
21
22
23
14:40:40:21
24
14:40:44:09
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 20 of 63
21
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
the loan, then the Federal Reserve —— then the lender goes to
the Federal Reserve in order to get the money which is going to
be forwarded to the borrower. You can see then it shows the
line then is the Federal Reserve gives the PPPLF loan to the
lender, and then after receiving the money from the Fed, the
lender then provides the loan to the small business. At least
as the Fed was explaining it to lenders like MBE Capital at the
time, the whole idea of this was the priority of the government
was to pump money out to businesses so that they could keep
people on payroll. The problem for ——
THE COURT: In your view, what does the collateral
mean if this ——
MR. SCHACHTER: The collateral ——
THE COURT: If the money's just being funneled out
before the loan is actually extended, how is it actually
collateralized?
MR. SCHACHTER: It is the pledged loan, the promise to
repay the loan. First of all, let's just keep in mind, it's
not actually intended to be loans. The purpose of this is the
government wants to get money into the hands of small
businesses. The loans are intended to be forgiven, so ——
THE COURT: Intended if the person ends up complying
with the terms of the loan. If they violate the terms of the
loan, then the loan is not forgiven, correct?
MR. SCHACHTER: 100 percent. However, the term is to
14:42:19:07
1
2
3
4
5
6
7
8
9
10
11
14:41:36:25
12
13
14:41:42:01
14
14:41:42:27
15
16
17
14:41:53:23
18
19
20
21
22
14:42:08:18
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 21 of 63
22
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
use the money for payroll or business expenses. So it's not
particularly hard to meet those conditions. The idea is we
need to pump what was, I think, nearly a trillion dollars into
the economy, and we need people to continue to pay their
employees. That was the government priority. So while it's
called a loan program, it is a bit of a misnomer.
In any event, the pledged collateral is the promise to
repay, at least how the Fed explained it, and I can quote some
of the words from the Fed representative as they were going
through this slide. The promise to repay the loan by the small
business is the pledged collateral which then gets handed off
to the Fed, and in exchange for that promised repayment, which
the intent is that the SBA is going to forgive that loan, and
the SBA is going to repay the Fed. That's how the Fed is going
to be repaid for the money that it is fronting.
And then —— as you can see. So the lender gets the
promise to repay from the small business, passes that off to
the Federal Reserve, and then you can just see the arrows.
Then the PPLF loan is made by the Fed to the lender and then
from the lender to the small business. The fear, as at least
it was explained by the Fed to the public and to lenders, was
we're worried you don't have the balance sheet. You, lenders,
are going to be worried about having the balance sheet to
provide the money to the small businesses. We don't care about
that. What we, the government, care about ——
1
2
3
4
5
6
7
14:42:44:22
8
9
10
11
12
13
14
15
16
14:43:27:01
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 22 of 63
23
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
THE COURT: Under your view, the lender needed to have
no balance sheet whatsoever?
MR. SCHACHTER: Correct.
THE COURT: Zero?
MR. SCHACHTER: That's actually correct. They didn't
need a balance sheet. And the whole idea —— I mean, you were
supposed to —— the regulations were you're supposed to just
take the borrower's word for it. Whatever paperwork the
borrower submits, you are not supposed to effectively diligence
that, and in fact ——
THE COURT: In your view, was the lender supposed to
have any substance other than to just act as a funnel, to have
relationships to minority businesses or borrowers and funnel
money out?
MR. SCHACHTER: It was supposed to be in business and
it was supposed to have payroll. That was the purpose,
because, again, the goal ——
THE COURT: I mean the lender, not the borrowers; the
lender, the person who's the intermediary in your client's
position. There seems to be a difference between you and the
government. The government sort of understandably argues,
listen, these people who are intermediaries, the lenders,
actually perform an important function, and they perform a
quality control function, and there's some notion to the fact
that they've got some capital and some employees. And there's
1
14:44:04:00
2
3
14:44:07:27
4
14:44:08:18
5
14:44:10:07
6
7
8
9
10
11
14:44:25:25
12
13
14
15
14:44:40:13
16
17
18
14:44:45:15
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 23 of 63
24
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
a way of reading your papers that just suggest, well, as long
as the money ends up in the right place, it should be a matter
of indifference to the federal government whether there ever
was any substance to Mr. Martinez's business in the first
place.
MR. SCHACHTER: Sure. So what matters is, at the
time, what was the government's priority? And the priority ——
there's a reason why they turned to nonbank lenders in the
first place. The United States has plenty of banks. Why did
they turn to nonbank lenders even in the first place? And the
answer to that is the government issues, like, $350 billion,
and banks do what banks do. They want to curry favor with
their clients. And so what happens with that $350 billion,
which is gone in an instant, is they lent money to the Lakers.
They lent money to Shake Shack. They lent money to large law
firms. And the government was immediately subject to
criticism. The treasury was subject to criticism because
people are saying, what the about small —— what about the small
businesses that —— in particular, the minority businesses that
are the lifeblood of the country? And the banks, they're like,
we don't know those people. We don't —— banks don't —— they
didn't care about the small minority-owned businesses.
And so it became an immediate priority of the treasury
to find nonbanks, because banks aren't doing the job that is
necessary of keeping small businesses, particularly minority
1
2
3
4
5
6
14:45:34:15
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
14:46:40:20
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 24 of 63
25
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
businesses, afloat. And so that is why they turned to nonbank
lenders. And in particular, the Court would have seen in some
of our exhibits the internal correspondence at the Small
Business Administration. They made it a priority: We need to
bring on MBE Capital because they know the people that the
banks don't. The banks don't know minority small businesses.
That's a bit of an overstatement, but it was a big problem.
And so you see in the internal correspondence of the
SBA that the officials there are speaking about the importance
of bringing on MBE Capital, presumably other entities that are
in a lending function and have contacts with minority small
businesses, because that is where the money needs to go,
otherwise the economy's going to tank, otherwise we're going to
have huge unemployment. In order to weather the storm, they
needed to pump the money out to the people that really needed
it, and the banks weren't doing that job.
You'll see in the correspondence that there are
actually questions about the financial statements that were
submitted. There are questions in the internal correspondence
about does MBE have the wherewithal to manage this program.
And in an internal memo they say there's inconsistencies in the
financial statements, and then the day later the SBA says:
Look, this is important. We need to get MBE, and presumably
other minority lenders, we need to get them on track urgently,
and that's why —— that's why they were involved.
1
2
3
4
5
6
7
8
14:47:21:08
9
10
11
12
13
14
15
16
17
14:47:57:13
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 25 of 63
26
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
And so Mr. Martinez worked too fast to get information
—— and we obviously acknowledge it was false information,
there's no question about that. That's not why we're here ——
to become a nonbank lender. But the government is wrong by
saying that he did not —— he and his employees did not
earnestly work as hard as they possibly could in order to do
the job that the banks were not doing, and your Honor sees that
in the letters and the reviews that were submitted to MBE.
There's a letter from a man named Ricardo Villarreal
who owned the Itty Bitty Inn in North Bend, Oregon, and he
wrote to the Court about how he couldn't get a loan from banks
after Oregon shut down hotels, and he had no way of paying his
employees. He couldn't —— he tried to go to banks, and the
banks said they just had no interest. They ignored him. And
he writes to the Court. He doesn't know even what the nature
of the charge is. He writes that Rafael and MBE "demonstrated
empathy and were respectful and quick to act." He wrote to the
Court how Rafael and MBE helped, in his words, "when it seemed
that no one else would."
That's the reason why the treasury turned to nonbank
lenders at all. Were they perfect? Of course not. They were
inundated immediately because there was overwhelming demand. I
presume the banks were too, and as the Court saw from the
Inspector General report, there was fraud in the program.
There were a lot of people that applied for duplicate loans
1
14:48:36:14
2
3
4
5
6
7
8
9
14:49:13:08
10
11
12
13
14
15
16
17
18
19
20
14:50:03:04
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 26 of 63
27
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
that didn't really have businesses, but the government
understood that going in. That was the least —— at the time of
that national emergency, that was the least of the government's
problems. The focus at the time was we need to pump money out
into businesses, and in particular small businesses, so that we
can keep the economy afloat. And that's why they turned to
nonbank lenders at all and that's why the SBA says there may be
some inconsistencies in the financial statements and we're not
really sure that they have the wherewithal to do the job, and
the next day the SBA says they're approved. We need people
with contacts in the minority community.
And when the government says that MBE and Rafael were
totally unqualified, that's just —— I don't know where that is
coming from because that is false. Mr. Martinez has spent his
entire career focused on providing lending to small minority
businesses. The way his business works is ——
THE COURT: The presentence report reflects that until
he got the PPP money and got the qualification to become a PPP
lender and started up on this business, he had —— and I'm now
quoting —— "at most four employees who had a total average
monthly payroll of no more than $25,000." Is that exactly the
kind of entity that the federal government was using —— was
intending to use to pump out money?
MR. SCHACHTER: Mr. Martinez had 65 people that were
working for him going through the lending ——
1
2
3
4
5
6
7
8
9
10
11
12
14:51:07:24
13
14
15
16
17
14:51:33:18
18
19
20
21
22
23
24
14:52:07:27
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 27 of 63
28
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
THE COURT: I know he ramped up. He ramped up.
MR. SCHACHTER: Correct.
THE COURT: But he didn't have the kind of business
before he ramped up, before he got the qualifications, that one
would have expected to have for an entity that was a PPP
lender, or am I wrong?
MR. SCHACHTER: Well, I think, your Honor, I don't
think that that's —— I don't think that's correct because,
first of all, they didn't ask how many employees you have. If
that was important, they certainly could have asked the
question how many employees you have. They knew, the SBA
knew ——
THE COURT: The financials have to have some
relationship to the magnitude of the business, right?
MR. SCHACHTER: That is correct. However, those
numbers, you'll note —— look, this is not really a matter that
the Court needs to take up, but those numbers do reflect the
amount of lending that Mr. Martinez's business was involved in.
So I can describe the details of his business, but this was not
a small —— I mean, it's not Bank of America, but they had a lot
of clients.
The way it worked is these would be small businesses
that are —— what they have are orders from General Motors, from
Neiman Marcus, but they don't have the money to make their
payroll today. And so what Mr. Martinez's business is, and
1
14:52:14:01
2
14:52:17:22
3
14:52:18:06
4
5
6
7
14:52:30:24
8
9
10
11
12
13
14:52:47:19
14
15
14:52:55:04
16
17
18
19
20
21
22
14:53:22:09
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 28 of 63
29
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
he's been doing this for 20, 30 years, the business that ——
THE COURT: He lends against the orders, is that it?
MR. SCHACHTER: Correct. He lends against the orders,
and then he is repaid when General Motors or Neiman Marcus
pays. In fact, while he did that on his own for a time, he
then also had funding sources who would provide the business to
—— the money to Mr. Martinez that Mr. Martinez would then lend
out to small businesses. This has been a —— this has been his
career. And the Court has letters from some of the people to
whom he allowed their businesses to stay afloat and grow. The
Court has letters from a number of individuals that talked
about how their business would have died if it were not for
Mr. Martinez's business. They also speak to his mentoring, his
empathy, and how he helped them.
So this is not a small business, and that is —— the
government recognized that, different arm of the government,
but as we wrote in 2017, MBE entered into a memorandum of
understanding with the Department of Commerce's Minority
Business Development Agency to provide over a billion dollars
in financing to companies that were clients of the Minority
Business Development Agency.
So the Department of Commerce specifically sought out
MBE Capital to do business with Mr. Martinez's business because
he was well-known in helping —— really caring about minority
businesses and helping them find the financing they need so
1
2
14:53:46:23
3
14:53:49:12
4
5
6
7
8
9
10
11
12
13
14
15
14:54:40:13
16
17
18
19
20
21
22
14:55:09:18
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 29 of 63
30
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
they can grow, which, to the Department of Commerce, was an
important part of their mission is helping small minority
businesses.
And they sought out MBE Capital. So for the
government to say that Mr. Martinez's business was completely
unqualified to do this, well, somebody should ask the
Department of Commerce, because the Department of Commerce
specifically sought out MBE and said will you help us provide
—— we tried to provide business counseling to minority
businesses. Will you help us to —— when people come in, when
minority businesses come into the Department of Commerce for
help, we want you, MBE Capital, to assist those businesses in
obtaining financing, because their business was a recognized
expert in the field.
So then a year after entering that memorandum of
understanding, in 2018, all before this offense, all before his
application, MBE was awarded the Minority Business Development
Agency's Access to Capital Award after financing $970 million
in accounts receivable and helping its clients grow an average
of 31 percent. That's not Mr. Martinez that's saying that,
that's the Department of Commerce. And it's —— Exhibit J to
our papers is the Department of Commerce's Minority Business
Development Agency's press release.
So, yes, he was qualified. Yes, his business was
qualified to manage the program as it was intended, and then
1
2
3
4
14:55:36:21
5
6
7
8
9
10
11
12
13
14
15
14:56:15:26
16
17
18
19
20
21
22
23
24
14:56:56:21
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 30 of 63
31
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
they did. They did what the banks couldn't do, which is the
reason why they turned to him in the first place, which is they
made smaller loans than the banks were, because the banks'
clients were larger.
But there are people, there were businesses, thousands
of businesses —— they issued $900 million in loans to 37,000
companies. And by the way, they tried their hardest to ferret
out what was going to be fraud in applications everywhere.
They turned down 80,000 loans. And you saw in the exhibits
that we submitted there were times when the SBA would pressure
—— they would turn to MBE and pressure them: You need to move
faster. You need to move faster. Why aren't you getting the
money out? We need you to do that. And MBE's response was:
Look, we're doing our best here. We're trying to check the
materials that you're sending. But that wasn't the
government's priority at the time. The government's priority
was getting the money out. And with respect to MBE, the job
that they wanted MBE to do was to get the money out to minority
small businesses, and that's what they did, which Bank of
America and all the —— every other bank couldn't do. That's
what they did.
They didn't issue loans that were a million dollars,
$2 million, because that wasn't who they were; that wasn't who
they had contact with. They were getting the money out to
businesses with smaller payrolls. And so most of their —— vast
1
2
3
4
5
14:57:20:06
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
14:58:28:11
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 31 of 63
32
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
majority of the loans are under $200,000 to businesses like the
Itty Bitty Inn in North Bend, Oregon, that couldn't get the
banks to pay any attention to them. So they did the job they
were supposed to.
Mr. Fergenson speaks about are 17 —— in their papers
the government noted that there were $17 million of loans that
were not eligible, and I just want to be clear as to what the
reason for that was. The eligibility was supposed to be your
business was supposed to have existed, I think, a year before
the pandemic, and you were supposed to submit some kind of
paperwork that would establish that the business had been in
business a year earlier. So it's not that, in fact, that
$17 million did not go to completely legitimate small
businesses that had payroll that were going to be unable to
make their payroll if they didn't receive a PPP loan. The
issue is whether or not they correctly checked the box of being
in business one year before the pandemic or some period of time
before the pandemic.
And I just want to note that's correct, but 17 million
out of $900 million in loans is about 1.8 percent, which we all
know from the Inspector General's report there's far more ——
we're not even saying —— the government's not saying those are
fraudulent loans. The government doesn't know if those are
fraudulent loans. They don't —— they maybe have been used for
the actual purpose that they were intended, to pay payroll, to
1
2
3
4
5
14:59:02:26
6
7
8
9
10
11
12
13
14
15
16
17
18
19
14:59:52:08
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 32 of 63
33
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
keep the businesses afloat, but even that 1.8 percent is far
less than the fraud rates at Bank of America or anywhere else.
So I don't know if I —— I tried to respond to what I
heard to be the Court's questions about the offense, and it's a
serious one. Our papers, we hope, were clear that
Mr. Martinez, he has accepted responsibility and is filled with
remorse for what he did. We're only talking about —— is this,
you know, an unpatriotic act? How does the Court measure the
nature of the offense, the severity of the offense, because the
Court needs to do that?
I should note just one other thing before I move on.
The Small Business Administration in August of 2020 —— we
attach this in our papers —— they specifically wrote that
Rafael had been "incredible to work with" —— and I'm quoting
from the SBA —— "and a game changer for so many" and then
nominated him for the Small Business Administration's national
award.
So I think the Court's questions were how do I —— how
does the Court identify the severity of the offense which he
has acknowledged? And in particular, then, how then does the
Court weigh, because that's one factor that the Court needs to
consider, but there is, also, how does the Court put —— factor
in the nature of this offense, but how does it weigh that
alongside the history and characteristics of Mr. Martinez?
Which I would like to move to, but I want to make sure those
1
2
3
15:00:35:02
4
5
6
7
8
9
10
11
15:01:17:14
12
13
14
15
16
17
18
15:01:45:28
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 33 of 63
34
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
are the questions the Court has ——
THE COURT: No, that makes ——
MR. SCHACHTER: —— about the nature of the offense.
THE COURT: I may have some follow-up questions for
the government on the nature of the offense, and then I may go
back to you on that, but I think it makes sense for you to
cover the character of the defendant.
MR. SCHACHTER: Thank you, your Honor.
So in a case called United States v. Adelson, the
court in that sentencing case said very meaningful words. The
court wrote: "Surely if ever a man is to receive credit for
the good he has done, it should be at the moment of sentencing
when his future hangs in the balance." The court there wrote
that it is an elementary principle that is basic to all the
great religions, moral philosophies, and systems of justice
that a person's instance of misconduct has to be assessed in
the context of his overall life. And the letters that have
been submitted to the Court and the outpouring of support in
the courtroom today, they are testimony to the very —— to the
good that Rafael Martinez has done in his life.
The Court has not —— obviously, the moments where the
Court has had the opportunity to spend any time with
Mr. Martinez are, obviously, fleeting. That's the nature of
the system. Mine, ours, have been much more in depth, and we
have gotten to know Mr. Martinez very well. We have gotten to
1
2
15:02:27:21
3
15:02:29:12
4
15:02:31:03
5
6
7
8
15:02:42:02
9
15:02:53:00
10
11
12
13
14
15
16
17
18
19
20
21
15:04:07:07
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 34 of 63
35
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
know his family very well and his friends well, his employees.
And one thing that I pray has become very clear in the papers
and in the words that those people submitted is that Rafael is
a good man, and I mean that in just the truest sense of the
word. He is warm, he is kind, and he has led an exemplary life
which has been dedicated to acts of kindness, acts of charity,
of helping others, of making a difference in the lives of
others.
And I had the circumstance where when I was reading ——
when I would speak to his daughters —— and I've met them a
number of times —— and when I would hear their words, I felt
bad because it made me feel like I should have been a better
father, like I should have been a better —— like I should have
been a better husband because —— and it's not just words,
they're not just platitudes, but they're actual instances where
he just imbued the right lessons in his daughters. When his
wife passed, that he so took on the idea that he is now father
and mother to his daughters, and I didn't have that. I didn't
go through that kind of trauma, and I just —— it made me feel I
should have been better.
And it is not just family, which I want to spend time
on, but it's also his business. Because the letters from the
people that he worked with, people that he helped arrange
financing, they don't speak to purely a business relationship,
yeah, this is a guy that I entered into a contract with; he got
1
2
3
4
5
6
7
8
9
15:05:12:03
10
11
12
13
14
15
16
17
18
19
20
21
15:06:14:23
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 35 of 63
36
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
me financing. But they speak about how they couldn't have
grown their businesses without Rafael, how Rafael mentored
them. And the letters show about how he used whatever success
he achieved through his minority lending business to help
others, and you heard how he always has. You saw the letter
from his sister about how, when Rafael at age 13, got his first
job and got his first paycheck, he went out and bought them a
hula hoop, which his mother who cleaned houses in Washington
Heights couldn't afford to do. Rafael's instincts, even at age
13, were to go use what he got to help others, and he carried
that through his entire life. You read about how he worked to
level the playing field for disadvantaged kids in Washington
Heights, preparing them for life in business by trying to
sponsor a golf camp, sponsoring a soccer league. This is all
well before the pandemic.
He created EntreFamilia, which provides professional
and educational opportunities for those in the Dominican
community. You have in the courtroom representatives from the
community who are here to support Rafael because his work has
mattered so much. People like representatives from Congressman
Esplanade's office, from Senator Booker's office, from Senator
Menendez's office, people from his church are here because of
the good work that Mr. Martinez has done, Reaching New Heights,
the organization that he and his wife formed which was
dedicated to introducing careers like aviation to students of
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
15:07:47:06
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 36 of 63
37
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
color.
You also saw in those letters about his kindness. A
woman named Sweta Shah told the Court about how she had tears
in her eyes when her husband told her about how Rafael had
volunteered to take their 17-year-old who was special needs ——
he's nonverbal, can't use —— can't go to the bathroom on his
own —— and Rafael volunteers, I'll take him. I'll take him to
go see the holiday lights at the Bronx and is always around
caring for him. She wrote that "it is great to know that there
are still people like Rafael in this world who would do
anything to give a little joy to our son who has no friends."
That is character. That is the history and
characteristics of a person that matters most at this time.
It's not an act for anybody to see. It is not an act that
improves his business or his reputation. It is just something
that is so kind but also too intimidating for the vast majority
of us to take on something like that, but it speaks to who he
is.
I hope, your Honor, that in assessing his history and
characteristics that the Court has seen that he is just a
really good father and grandfather. And I'll describe some of
the instances that really moved me.
THE COURT: One thing you might also address —— I
probably should have said this earlier when I was talking about
the guidelines —— if the guidelines that apply to this case
1
2
15:08:32:08
3
4
5
6
7
8
9
10
11
12
15:09:26:09
13
14
15
16
17
18
19
15:09:57:08
20
21
22
23
15:10:14:12
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 37 of 63
38
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
were 108 to 135 months, I might very well consider a departure
to be appropriate on the grounds of exceptional good works, as
well as loss overstating the gravity of the offense, but the
statutory maximum is 60 months in this case.
And so the question in my mind, as I balance all of
the factors, is why shouldn't I consider the good works to be
effectively factored into the statutory maximum? In other
words, if the sentence and guidelines were 108 to 135 months,
there's no doubt in my mind that that would not be the
sentence. Your client would not receive a sentence within that
range and wouldn't receive a sentence in that range in part
because of his history of good works, but that's not the range
that we're talking about. We're talking about five years. And
the question for me is within the five, since I can only impose
five years, what kind of discounting —— should there be any
discount to the five years on the basis of the good works?
So you'll address that as you're going through things,
but I just wanted to lay it out on the table in terms of what
I'm thinking about so you can address it.
MR. SCHACHTER: I appreciate that, your Honor. And as
a prosecutor, I often when there was —— kind of a while ago ——
I would often think when it came time for sentencing —— I felt
like my job was to make sure the facts came out, that the facts
were acknowledged publicly for all to see, but the issue of
sentencing was one that I was very pleased that I really had
1
2
3
4
5
15:10:50:20
6
7
8
9
10
11
12
13
14
15
16
17
15:11:47:15
18
19
20
15:11:57:18
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 38 of 63
39
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
nothing to do with. That my job is to provide the facts to the
guy in the black robe, man or woman in the black robes, and I
got to wash my hands of that, because how much time should
someone be locked away and what good is served by that is
really hard.
And I guess I would put the question differently and
not as what is the discount that should be applied, but I would
think about it as what good comes from this? What is the ——
however long Mr. Martinez is incarcerated, his mom, who doesn't
know anything about the offense because he can't, the woman
that was mother and father to him because the father left the
family very early on, is 90 years old. And however long at age
90, however long he is to be incarcerated, the great likelihood
is that he will miss the end of her life.
He has small grandchildren that he cares for. He is,
obviously, a centerpiece of the daughters that he raises, and
he does every day enormous amounts of good for society. So I
think the question is to the Court, for the Court, what does
justice demand? Is the Court serving —— what amount of time
does Mr. Martinez need to be locked away from society,
warehoused in a facility to serve society's interests? Is the
world a better place? And the world has plenty of interests,
one of which is deterrence and all that. I don't mean to
suggest there aren't countervailing —— there are a whole bunch
of issues that the Court needs to assess, but at bottom, I
1
2
3
4
5
6
15:12:51:21
7
8
9
10
11
12
13
14
15
15:13:43:12
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 39 of 63
40
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
think the question for the Court is not how much discount
should I give from the guidelines, but rather, how much time do
I need to lock away this individual from his family, from his
friends, and from the society that he serves ably, how much
time do I need to do that in order to have justice be done?
THE COURT: That's a fair point.
MR. SCHACHTER: Is justice more served if it's two
years than one year? If it's five years than two years? Have
we served society by doing that? And for some people ——
THE COURT: You make a fair point and a point that's
consistent with the parsimony principle.
MR. SCHACHTER: And part of that is assessing the good
that Mr. Martinez does when he's not locked away in a facility,
and part of that is the good —— and we need to assess the
offense, but just as equally, if not more, we need to assess
who he is. And he is also a really good father and a good
grandfather. And in the letters to the Court, his daughter
Samantha, who was born with cerebral palsy, wrote about how he
coached her fourth grade basketball team, and as opposed from
dissuading her doing that, he took on the coaching and then
tried to arrange plays that would not tax her weaker left side;
how he taught her to dance so she would be —— so she would know
how do that despite the weaknesses in her ankle that comes with
that disease; how he —— one that moved me and made me feel bad
was how he would schedule date nights with his daughters so
1
2
3
4
5
6
15:15:05:06
7
15:15:06:16
8
9
10
15:15:24:13
11
12
15:15:32:12
13
14
15
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 40 of 63
41
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
that he would —— they would know how they're supposed to be
treated by a man that they're with.
And they would write about how he would talk about the
bigger pictures in the life and is still teaching me and
guiding me to be a strong mother of two; how he made sure that
he took his daughters every year to feed the homeless. His
daughter wrote: "Every year on the day before Thanksgiving, my
father would rally our family, and we would prepare 500 to
1,000 packed lunches. He would drive us around New York and
New Jersey to hand them out to those unhoused and less
fortunate. Every year my father would help my sister and I
arrange Christmas dinners at multiple shelters throughout New
Jersey so we could feed families around the holidays."
They wrote about —— I thought this was —— he instilled
the following, they described, as the lesson: That he taught
his daughters, "You can have everything in the world but are
nothing if you don't help your neighbor. He wanted to make
sure that we understood that everyone should be treated
equally."
They wrote about how he donated hundreds of turkeys to
families in Washington Heights. And his daughter Samantha
called her dad one of the greatest inspirations and the most
caring person she's ever met, and how he to this day now
watches her two-year-old —— his two-year-old Jacob and their ——
her brand new baby Ava for his daughter Chelsea. And she wrote
1
2
3
15:16:47:09
4
5
6
7
8
9
10
11
12
13
14
15:17:34:15
15
16
17
18
19
20
15:17:59:06
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 41 of 63
42
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
to the Court about how she fears that Rafael's incarceration
would send her into a dark place and how lost she would be.
And in going through the list of what are the history
and characteristics of Rafael, he was also, obviously, an
exceptional husband. Chelsea wrote that: "I idolized my
parents and was always in awe of their relationship. There was
something special about their partnership. I was always so
fond of how my father treated my mother. He was always so kind
and present. He really knew how to connect with her and put a
smile on her face even during the toughest of times."
I was moved by a letter from a friend named Mindy
Adams who wrote: "After his wife Ina was dying, that every few
months Rafael would tell Ina to pack a bag only to disclose the
temperature of the location that he had planned to take her.
She knew nothing until she got to the plane. He gave her
hope."
Herman and Brenda White wrote about how he would carry
her back and forth from her sickbed to the bathroom.
Dr. Sharon Banks Williams reported what one of Ina's
doctors said to her group of friends: "He has restored my hope
in family" —— this is the words from the doctor. "He has
restored my hope in family after observing his myriad of kind
interactions with his wife, thus extending her days beyond the
time of medical science."
And then after she passed, he honored her memory. He
15:20:05:13
1
2
3
15:18:33:07
4
5
6
7
8
9
10
11
15:19:09:15
12
13
14
15
16
17
15:19:34:07
18
19
15:19:42:29
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 42 of 63
43
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
gave hundreds of thousands of dollars to a hospital in
Englewood earmarked to help women of color who lack health
insurance to get cancer screenings so others wouldn't have the
same fate that Ina did. He renovated a local recreational
center which was named for Ina. He gave $400,000 to renovate a
community center in Newark. He is building a community center
in Washington Heights to be named for Ina where underprivileged
children will find a safe space for tutoring and a hot meal.
He annually provides for a hundred scholarship for students at
Cardinal Hayes school where Mr. Martinez attended and was in
constant fear that he would have to —— would be thrown out
because of the inability to pay the tuition.
And so I think the question for the Court is ——
because those factors are just as important as the nature of
the offense. There is no suggestion in the law that the
history and characteristics of the defendant matter less than
the nature of the offense. They are part of the entire set of
facts that the Court needs to consider when making the
assessment of how much time locked away serves the interest of
society and of justice. And I think that we hope that the
Court, in fashioning a sentence for what is obviously also
Mr. Martinez's first criminal offense, is able to put
appropriate credit —— we know the Court will —— put appropriate
credit in weighing the life that he has lived and the person
that he has been in determining an appropriate sentence.
1
2
3
4
5
6
7
8
9
10
11
12
13
15:21:02:18
14
15
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 43 of 63
44
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
THE COURT: Thank you, Mr. Schachter.
Let me ask one question of the government, then I'll
give you, Mr. Schachter, a chance to respond. I don't mean to
limit the government if there's anything further the government
wants to say.
It's not clear to me from the government's
presentation or from Mr. Schachter's presentation the
materiality of the misstatements that were made to become a PPP
lender. I can hear what Mr. Schachter says to suggest that SBA
asked the wrong question in terms of the number of employees;
the financials are sort of not particularly relevant. What's
the government's view?
MR. FERGENSON: Just one moment, your Honor.
Yes, your Honor. I think —— so I'm glad your Honor
asked the question, because there was one point I wanted to
address from the defense's presentation which relates to the
action memo by SBA upon an initial review of materials
submitted by MBE, by Mr. Martinez. And you'll note that the
action memo talks about how there are no 2019 audited financial
statements, and they reference it a couple times, even in the
bullets in the defense's submission. And then the defendant
submitted fraudulent 2019 audited financial statements that had
not been prepared by the tax preparer firm, and they certainly
had not been audited. That is —— you know, the SBA views that
and says, OK, an outside auditor vouches for these financials
1
15:22:17:27
2
15:22:19:01
3
4
5
6
15:22:34:09
7
8
9
10
11
12
13
15:23:12:08
14
15:23:32:19
15
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 44 of 63
45
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
which show that they are processing a significant number of
loans.
And the broader point, your Honor, is that if they
were just some kind of go-between who had no function in the
PPP system, one, there would be no point to use them, and
second, they wouldn't get the fees that the SBA was paying
lenders. Obviously, they're being paid to do something, not
just send money to anybody who sends them something. And
Mr. Martinez, through MBE, was paid over $70 million in those
fees.
THE COURT: Anything further from the defense?
MR. SCHACHTER: No, your Honor.
THE COURT: OK. Mr. Martinez, you're not required to
address the Court, but if you would like to, now would be the
time.
THE DEFENDANT: Thank you, your Honor. Could I use
the podium?
THE COURT: Maybe you can move over.
THE DEFENDANT: Can I use the podium?
MR. JACKSON: Your Honor, is it all right if
Mr. Martinez remains seated?
THE COURT: He can remain seated. But maybe,
Mr. Jackson, he can move closer to where you are or Ms. Reilly
could move over.
THE DEFENDANT: Or could I use the podium?
15:25:38:28
1
2
3
15:24:32:20
4
5
6
7
8
9
10
11
15:25:05:12
12
15:25:10:02
13
15:25:10:17
14
15
16
15:25:22:14
17
18
15:25:25:05
19
15:25:26:16
20
15:25:28:24
21
22
15:25:31:26
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 45 of 63
46
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
THE COURT: Whichever you'd prefer. It's whatever's
easier for you.
THE DEFENDANT: Thank you.
This is tough. Your Honor, members of the court, my
family, friends, and everyone else present today, I stand
before you with a heavy heart burdened by the weight of my
actions. It is with genuine remorse, deep regret that I
address this Court today seeking an opportunity to express my
heartfelt apology for the choices I have made.
I know the gravity of my transgressions and the impact
they have had. I know that impact has been felt by people
close to me, people in the community I have never even met, and
many others.
Judge Liman, I humbly request your understanding and
mercy as I take responsibility for my actions. First and
foremost, I want to emphasize that I deeply understand the harm
I have caused. I know that my actions have violated the law
and eroded trust placed in me by so many people over an almost
35-year career. I deeply regret the pain and distress I have
caused to my daughters, my family, everyone in the wider
community affected by my actions, not to mention my late wife,
as I let her down and will have to live with that the rest of
my life.
In the wake of my actions, I have had a lot of time
for introspection, a lot of time to reflect on the gravity of
1
15:25:41:11
2
3
15:25:45:02
4
15:25:56:12
5
6
7
8
9
10
15:26:23:22
11
12
13
14
15:26:44:06
15
16
17
18
19
20
21
22
23
24
15:27:37:00
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 46 of 63
47
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
my mistakes. Your Honor, I feel deeply within my heart that
this would not have happened if my wife was still here. My
wife of 30 years —— and we were together for 35 —— she was my
wife, my friend, my guardian, my lover, many times my
therapist, and my biggest cheerleader. I think so much of my
mistakes, thinking, and my actions that led me here were me
trying to fill a hole in my life that was there after she
passed. She was and will forever be the rock of our family,
not only for myself and my daughters but my entire family and
community. I thank God every single day that she was around
long enough for my daughters to see what a true Wonder Woman
she was.
I spent every week for five years taking my wife to
chemotherapy and seeing her die slowly, seeing her die slowly
and knowing that I had to continue raising two girls on my own,
which was not a small thing, as I am no match for who I was ——
who my wife was. After she passed, I was lost. I thought
things would get better, but they only got worse and very dark.
I tried putting on a strong front for my daughters but could
not be around them too long as I was reminded of their mom and
would start crying like a baby. Feeling desperate at some
point to find some new source of validation and purpose, I
allowed myself to go down the path that led me to here.
I know that my trauma does not in any way excuse my
horrible mistakes, your Honor, but I only want to give you a
1
2
3
4
5
6
7
8
9
10
11
12
13
15:28:51:05
14
15
16
17
18
19
20
21
22
23
24
15:30:08:16
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 47 of 63
48
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
window into the —— my best attempt to figure out how, looking
back on all these mistakes, I was able to become so lost and so
off course.
My family has been the rock and my source of strength
—— my daughters, my departed wife, my mother who scrubbed
floors to provide for my sisters, my brother, and myself as a
single mom growing up. When I lost one of the pillars of my
strength, I allowed myself to collapse in a way that I will
never forgive myself but that I hope my family will eventually
be able to forgive me for.
Your Honor, I pledge to use the experience as a
catalyst for personal growth and as a reminder of the value and
of moral integrity I have followed and taught others my entire
life. I am deeply committed after serving my sentence to again
being a law-abiding citizen who will contribute positively to
my community. I will seize every opportunity to make a
meaningful difference —— difference, to learn from this
experience, and to help prevent others from making similar
mistakes and to repay every cent that I can.
The one extremely bright moment and spot in this
period of personal darkness for me is that even as I mentally
prepared for this sentencing, I became a grandparent for the
second time. It has been the joy of my life and an unexpected
blessing that this moment has allowed me time to help my
daughter spend —— and spend time with my two grandchildren, as
1
2
3
4
15:30:26:25
5
6
7
8
9
10
11
15:31:00:15
12
13
14
15
16
17
18
19
20
15:31:47:15
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 48 of 63
49
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
well as my daughter Samantha, who is such a wonderful
inspiration to me and has achieved so much even with cerebral
palsy. I believe that the chance for me to contribute as a
grandfather is a turning point for me starting with a brighter
and new chapter of my life, and I deeply hope I can come home
in time to help as much as I can and see as much of their early
lives as possible.
Your Honor, members of the court, and those who have
been impacted by my actions, I understand the pain and
disappointment my actions have caused. I am mindful of the
trust that has been broken. I respectfully request any
leniency your Honor believes is appropriate in assessing my
punishment. Whatever the Court's decision, I will strive to
make amends and rebuild my life on a path guided by integrity,
responsibility, and my faith in God.
Thank you so much, Judge, for your attention and
understanding.
THE COURT: Thank you.
I'm going to retire in a moment to the robing room.
Before I do so, I have a couple of questions for the
government, not about the facts, and I'll permit the defense to
be heard, obviously, with respect to these also.
First of all, I noticed from the presentence report
that it's recommended that I impose restitution. There's a
figure for restitution. Is there a consent order of
1
2
3
4
5
6
7
8
15:32:59:11
9
10
11
12
13
14
15
16
15:33:39:15
17
18
15:33:44:27
19
15:33:47:18
20
21
22
23
15:34:09:25
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 49 of 63
50
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
restitution, and is restitution applicable in addition to the
order of forfeiture?
MS. REILLY: Your Honor, there's consent as to the
restitution amount. It was included in the plea agreement. We
don't have an order prepared today, your Honor, but we propose
to submit one within seven days.
THE COURT: All right. That will be acceptable.
The second question has to do with some of the
recommended special conditions of supervised release, and I'd
be interested in the views of both sides with respect to this.
In particular, I'm thinking about the recommended
special condition of the search condition or —— and of the
requirement that if the probation officer determines that
Mr. Martinez is a risk to another person, that he notify the
person about the risk and comply with the instruction and
whether those conditions really are necessary based upon the
facts of this case.
MR. FERGENSON: Yes, your Honor, I don't think the
government has any objection to not including those conditions
in this case.
THE COURT: OK. I don't think, Mr. Schachter, you
need to be heard with respect to that.
All right. I'm going to retire for a couple of
minutes, and I'll be back on the bench. Thank you.
(Recess)
15:35:50:12
1
2
3
15:34:30:15
4
5
6
7
15:34:40:13
8
15:34:43:24
9
10
11
15:34:57:18
12
13
14
15
16
17
18
15:35:36:16
19
20
21
15:35:42:06
22
23
15:35:46:08
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 50 of 63
51
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
THE COURT: Be seated.
All right. Mr. Fergenson, is there any reason why
sentence should not now be imposed?
MR. FERGENSON: No, your Honor.
THE COURT: Mr. Schachter, is there any reason why
sentence should not now be imposed?
MR. SCHACHTER: No, your Honor.
THE COURT: As I've stated, the guidelines range is
108 to 135 months, but the guideline sentence applicable to
this case is 60 months because of the statutory maximum.
Under the Supreme Court's decision in Booker and the
cases that have followed it, the guidelines range is only one
factor that the Court must consider in determining the
appropriate sentence. The Court is also required to consider
the other factors set forth at 18 U.S.C. Section 3553(a).
These include the nature and circumstances of the offense and
the history and characteristics of the defendant; the need for
the sentence imposed to (a) reflect the seriousness of the
offense, to promote respect for the law, and to provide just
punishment for the offense; (b) to afford adequate deterrence
to criminal conduct; (c) to protect the public from further
crimes of the defendant; and (d) to provide the defendant with
needed education or vocational training, medical care, or other
correctional treatment in the most effective manner; the kinds
of sentences available; the guidelines range; any pertinent
1
15:54:46:15
2
15:54:54:14
3
4
15:55:00:09
5
15:55:01:03
6
7
15:55:04:15
8
15:55:05:08
9
10
11
15:55:18:06
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 51 of 63
52
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
policy statement; the need to avoid unwarranted sentence
disparities among defendants with similar records who've been
found guilty of similar conduct; and the need to provide
restitution to any victims of the offense.
The Court is also required to follow the parsimony
principle. It's required to impose a sentence sufficient but
no greater than necessary to comply with the purposes set out
above. I find that the sentence I'm about to pronounce
satisfies the parsimony principle and is sufficient but not
greater than necessary to satisfy the purposes of sentencing
I've just mentioned.
I've given a lot of thought and attention to the
appropriate sentence in this case in light of the Section 3553
factors and the appropriate purposes of sentencing. I've been
helped a lot by the lengthy submissions of the parties and by
the lengthy argument of the parties, as well as by the
defendant's comments.
As Mr. Schachter anticipated, among the primary
factors that drive a sentence are the gravity of the crime, the
need for just punishment, and the need for the sentence to
promote respect for the law, as well as to promote and serve
the interests of general deterrence.
The government is right here to emphasize the gravity
of the crime. Mr. Martinez took advantage of a true national
crisis to illegally enrich himself. He lied to the federal
1
2
3
4
5
15:56:27:25
6
7
8
9
10
11
12
15:56:52:01
13
14
15
16
17
18
15:57:17:08
19
20
21
22
23
15:57:36:12
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 52 of 63
53
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
government to get a loan of over $283,000 and then, having
procured that loan or being in the process of doing so, he lied
to become a qualified Paycheck Protection Program lender. He
did so in ways that were unmistakably criminal, making up
audited financials, forging his accountant's signature. And
the conduct was repeated. It wasn't isolated. He made similar
misstatements to others over a period of time.
Each aspect of Mr. Martinez's crime, the lies to get a
loan for himself and his business and the lie to become a
qualified PPP lender, is deserving of punishment. The PPP was
designed to provide emergency financial assistance to persons
at a time of extreme crisis in this country, to persons who
were suffering the economic effects of the COVID-19 program.
It was designed to help ensure that employees would continue to
be paid and to receive their paychecks. It was not designed to
enable someone to build up their business or to obtain profits
from the largess of the government.
At the time Mr. Martinez applied, there was no
assurance that there would in fact be enough in the program for
those who were truly in need. The program had once run out of
congressional funding. There was a second tranche, and there
was no assurance that, when Mr. Martinez dipped into the PPP
program, that there would in fact be enough money for everybody
who was truly in need.
In addition, that program and other programs like it
15:59:53:18
1
2
3
4
5
6
7
8
15:58:25:23
9
10
11
12
13
14
15
16
17
18
15:59:19:28
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 53 of 63
54
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
rely on persons who apply for loans to be truthful and honest
and forthright. The integrity of the whole system, the ability
of the government to engage in similar programs is undermined
if the government can no longer trust persons who apply to be
truthful in their applications.
In this respect, I place very little weight on the
defendant's argument that the funds he borrowed ultimately were
used to hire employees. I recognize there's some dispute of
fact as to that issue, with the government saying that it can't
trace all of the money that Mr. Martinez received, and I accept
the notion that the money was used to hire employees, but that
does not excuse or particularly mitigate the conduct. There's
no question that Mr. Martinez was not entitled to the loan and
that he profited from it. And he did so by lying, and that was
wrong.
Mr. Martinez's second wrong, and a wrong that is at
least equivalent to the first one, was to lie to the SBA and
others about the financial condition and performance of his
business to become a PPP lender. It is important to highlight
the gravity of that crime itself. The PPP program was adopted
at a time when the country, the government, was vulnerable. It
relied upon PPP lenders to disburse the funds to borrowers.
The PPP lenders were not just pass-throughs. I reject the
notion that they were pass-throughs. They were entrusted by
the government to perform an important function in the public
1
2
3
4
5
6
16:00:15:01
7
8
9
10
11
12
13
14
15
16
16:00:59:02
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 54 of 63
55
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
interest. And the financial information that Mr. Martinez
provided was important to the government and its oversight in
deciding to entrust him with that responsibility. He lied to
get that responsibility. That was unquestionably wrong. It
did damage to the program. It did damage to the trust that
that program and other programs need in order to survive.
There is a suggestion in the defense papers at times
that the lies should be treated as a matter of insignificance
or that they should be excused; that the good that Mr. Martinez
did in disbursing the funds to minority businesses somehow
outweighs the harm that he caused by cheating the government to
become a PPP lender in the first place. I reject that view.
First, the evidence does not support that Mr. Martinez
engaged in this business out of some kind of altruism. I
believe it supports, I think it amply supports, that he did so
for profit and out of a desire for money and more money and, in
some respects, out of greed. That doesn't make Mr. Martinez
evil. I don't believe that he's evil. I believe, and all the
evidence supports, that he's a fundamentally good person, but
the evidence doesn't support that he did this solely or even
primarily out of an altruistic intent to just distribute moneys
to the minority community. And even if he did so, the means
themselves were wrongful and deserve punishment. The crime
required forethought and sophistication. It was unambiguously
wrong, and it violated the basic norms to which we expect
1
2
3
4
5
6
7
16:02:36:17
8
9
10
11
12
13
16:03:01:06
14
15
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 55 of 63
56
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
everyone in society to adhere.
I also need to consider the interest of general
deterrence. A sentence that a court imposes must be calibrated
to send a message to others that it is not worth it to engage
in criminal behavior; that even if there is a low risk that
they will be caught, the consequences of being caught far
outweigh the potential of any benefit. The fact that the
sentence has to serve the interest of general deterrence is not
based on —— and I don't have any misguided or grandiose notion
that my sentence or, indeed, the sentence that any single judge
imposes can send a message of general deterrence. I don't
think the sentence that any single judge imposes can send such
a message of general deterrence. It's based upon the notion
that there should be some parity across sentences. That judges
have to consider not just the sentence they impose but how the
sentence they impose relates to sentences that are imposed by
others, and it's animated by the notion that if all or most
judges ignore the interest of general deterrence, then a
critical function of the criminal law to prevent crime from
occurring, and not just to punish it after it occurred, would
be undermined.
Now, the law does not tell me the precise sentence
that I need to impose to satisfy the parsimony principle. It's
not a mechanical or arithmetic exercise. And Mr. Schachter's
surely right when he says that the question is not in terms of
1
2
16:04:11:28
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
16:05:39:03
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 56 of 63
57
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
discount. The question for me is the minimum sentence of
incarceration that I must impose in order to satisfy the
purposes of sentencing. I'm well cognizant that I will be
taking Mr. Martinez out of the community, and each day that
he's out of the community will not only cause a harm to
Mr. Martinez but also will cause a harm to the community
itself. And here, I am impressed by the presentation from
Mr. Martinez's lawyers, from the letters that I've received,
and the presence of all the people here and from Mr. Martinez's
comments to me and Mr. Schachter's comments to me.
Mr. Martinez grew up poor, and he built up a stable
and successful life for himself and his family. He's given
selflessly to many communities. Those contributions appear to
be genuine. They were not just made when he knew that he was
facing criminal charges.
He has a clean record, and he's never been in trouble
with the law before. He's got a stable network to return to
after he serves his time in prison. He has the skills and
record to continue to contribute to society after he returns.
He's done good works in a number of ways, and I'm satisfied
that he will continue to do it.
I also credit two things: First of all, I credit that
this crime did occur to some extent at a moment of darkness for
Mr. Martinez, and that gives me some confidence that it's not
characteristic of him at all. He's not a young person, and his
1
2
3
4
5
6
7
8
9
10
11
16:06:49:21
12
13
14
15
16
16:07:08:05
17
18
19
20
21
22
16:07:42:28
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 57 of 63
58
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
life up until the time of these extraordinarily serious crimes
was, as I've mentioned, a law-abiding one.
I also am taking into account that the sentence that I
impose will include a punishment, a forfeiture, and forfeiture
is a punishment. It's not the same as restitution. He's going
to not just account for the harm that he caused, but he's going
to have to return every cent of the proceeds that he received.
So those are the factors that I think about. In
thinking about those factors, I've concluded that I must impose
a sentence close to the guideline sentence in this case but not
quite as serious as the guideline sentence in this case. I
will now state the sentence I intend to impose. The attorneys
will have a final opportunity to make legal objections before
the sentence is finally imposed.
Mr. Martinez, would you please rise.
After assessing the particular facts of this case and
the factors under Section 3553(a), including the sentencing
guidelines, it is the judgment of the Court that you are to
serve a sentence of imprisonment of 54 months in the custody of
the Bureau of Prisons, to be followed by a period of three
years of supervised release.
As to supervised release, you will be subject to the
following mandatory conditions set forth at pages 35 to 36 of
the presentence report:
You must not commit another federal, state, or local
16:09:45:07
1
2
3
16:08:16:07
4
5
6
7
8
16:08:40:23
9
10
11
12
13
14
15
16:09:11:09
16
16:09:16:03
17
18
19
20
21
22
16:09:35:29
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 58 of 63
59
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
crime.
You must not unlawfully possess a controlled
substance. You must refrain from any unlawful use of a
controlled substance and must submit to one drug test within 15
days of release from imprisonment and at least two periodic
drug tests thereafter as determined by the Court.
You must cooperate in the collection of DNA as
directed by the probation officer and must make restitution in
accordance with 18 U.S.C. Sections 2248, 2259, 2264, 2327,
3663, 3663(a), and 3664.
You must comply with the standard conditions of
supervised release. The standard conditions of supervised
release as set forth on pages 36 to 37 of the presentence
report shall apply.
You must also meet the following special conditions
that are set forth in the presentence report, including that
you must provide the probation officer with access to any
requested financial information and must not incur new credit
charges or open additional lines of credit without the approval
of the probation officer unless you are in compliance with the
installment payment schedule.
And you will participate in an outpatient treatment
program approved by the U.S. Probation Office, which program
may include testing to determine whether you've reverted to
using drugs or alcohol.
1
2
16:09:48:13
3
4
5
6
7
16:10:04:21
8
9
10
11
16:10:24:28
12
13
14
15
16:10:37:26
16
17
18
19
20
21
22
16:11:04:25
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 59 of 63
60
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
The last condition is based upon Mr. Martinez's use of
alcohol while on pretrial release. The first two conditions
are based upon the financial nature of the crime and the
financial nature of the sentence that I'm imposing.
I'm imposing restitution of 71,711 —— $711,000 —— let
me try again. $71,711,893. I'm also imposing —— with a
consent order of restitution to be submitted in seven days.
I'm also imposing forfeiture of $71,711,893.07
pursuant to the consent order of forfeiture I've been provided.
I'm waiving the fine based upon ability to pay.
And I'm imposing the mandatory special assessment of
$100, which shall be due immediately.
You may be seated.
Mr. Fergenson, do you know of any legal reason why the
sentence should not be imposed as stated?
MR. FERGENSON: No, your Honor. Just one correction
to the forfeiture amount. I believe you gave the same amount
as the restitution, and it's actually $44,546,712.94 for
forfeiture, your Honor.
THE COURT: I think I did give the wrong number. Can
you give that to me again, 44 million.
MR. FERGENSON: Yes, your Honor. $44,546,712.94.
THE COURT: OK. So I revise what I said. I'm
imposing forfeiture of $44,546,712.94.
Mr. Schachter, do you know of any legal reason why the
16:13:23:07
1
16:11:18:09
2
3
4
5
16:11:35:21
6
7
8
16:11:59:24
9
10
16:12:12:11
11
16:12:16:12
12
13
16:12:22:20
14
16:12:27:00
15
16
16:12:31:27
17
18
19
20
16:12:49:03
21
22
16:13:00:11
23
16:13:09:24
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 60 of 63
61
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
sentence as stated should not be imposed?
MR. SCHACHTER: No, your Honor.
THE COURT: OK. The sentence as stated is imposed.
Are there recommendations that you would like me to
make with respect to the sentence?
MR. SCHACHTER: Yes, your Honor. We would ask that
the Court recommend to the Bureau of Prisons that Mr. Martinez
be placed at the camp at Lewisburg, Pennsylvania.
THE COURT: I will make that recommendation.
Are there open counts?
Mr. Schachter, is there another recommendation?
MR. SCHACHTER: Yes, your Honor. We —— actually, it's
a request.
THE COURT: OK.
MR. SCHACHTER: Normally, we understand that
designation is taking about three months. As the Court saw in
our papers, Mr. Martinez's mother turns 90 on December the
24th. It is —— given the length of incarceration, he may not
see her again, and it would be ——
THE COURT: You're asking for a surrender date to be
set in the beginning of next year, is that right?
MR. SCHACHTER: Yes, your Honor.
THE COURT: Is there any objection to that from the
government?
MR. FERGENSON: No, your Honor.
16:14:32:24
1
2
16:13:28:04
3
16:13:28:21
4
16:13:35:13
5
6
16:13:41:06
7
8
9
16:13:50:03
10
16:13:53:27
11
16:13:56:06
12
16:13:58:00
13
14
16:14:00:09
15
16:14:01:03
16
17
18
19
20
16:14:26:13
21
22
16:14:30:17
23
16:14:30:29
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 61 of 63
62
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
THE COURT: Let me come up with a date, and I'll run
it by the parties.
January 13 make sense, Mr. Schachter?
MR. SCHACHTER: Yes. Thank you, your Honor.
THE COURT: All right. The defendant will surrender
for service at the institution designated by the Bureau of
Prisons before 2 p.m. on January 13, 2024, or as notified by
the probation or Pretrial Services department.
I'm going to ask about bail in a second, but before we
get to that, are there open counts?
MR. FERGENSON: Yes, your Honor. The government moves
to dismiss any open counts.
THE COURT: That motion is granted. The open counts
are dismissed.
Let me advise Mr. Martinez that to the extent you have
not given up your right to appeal your conviction and sentence
through your plea of guilty and the agreement that you've
entered into with the government in connection with that plea,
you have the right to appeal your conviction and sentence. If
you are unable to pay the cost of an appeal, you may apply for
leave to appeal in forma pauperis. The notice of appeal must
be filed within 14 days of the judgment of conviction.
What are the bail conditions and is there any
objection to them continuing as set?
MR. FERGENSON: No objection to continuing the current
16:16:12:04
1
16:14:34:17
2
3
16:15:03:27
4
16:15:06:03
5
16:15:07:01
6
7
8
9
16:15:26:15
10
11
16:15:33:06
12
13
16:15:36:12
14
15
16:15:40:21
16
17
18
19
20
21
22
23
16:16:06:26
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 62 of 63
63
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
N7RHMarS
conditions, your Honor.
THE COURT: All right. Bail will be continued as set.
Is there anything else from the government?
MR. FERGENSON: No, your Honor.
THE COURT: Is there anything else from the defense?
MR. SCHACHTER: No, your Honor.
THE COURT: I would like to thank the many members of
the audience for being here and would also like to acknowledge
Mr. Martinez's words to me. They were helpful in imposing
sentence, and it's never an easy thing to impose sentence.
Mr. Martinez, I wish you luck. And as I said, I am
confident that after you serve your time, you will become a
valuable member to the community again.
Thank you all.
(Adjourned)
1
2
16:16:15:05
3
16:16:19:00
4
16:16:21:10
5
16:16:22:11
6
16:16:24:00
7
16:16:26:14
8
9
10
11
16:16:46:21
12
13
14
16:16:57:15
15
16:16:58:21
16
17
18
19
20
21
22
23
24
25
Case 1:22-cr-00251-LJL Document 85 Filed 08/29/23 Page 63 of 63File and source
- File
- gov.uscourts.nysd.579149.85.0.pdf
- Size
- 228,159 bytes
- SHA-256
- f27183331139c8d86ce0037e247506af3c71d5904ae029fedd5b644428d3973f
- Original
- storage.courtlistener.com