Carlos Smith, Case No. 20cr922

Summary

A sealed indictment returned by the Special January 2020 Grand Jury in United States v. Carlos Smith, Case No. 20cr922, in the U.S. District Court for the Northern District of Illinois, Eastern Division, received 12/17/2020 and assigned to Judge Manish S. Shah, charging violations of Title 18, United States Code, Sections 1014, 1343 and 1957. It describes Smith as CEO and owner of CLS Financial Services, Inc., an Indiana corporation, and sets out the background of the Paycheck Protection Program under the CARES Act. One wire fraud count cites a transfer of approximately $149,900 from the SBA Finance Center to the company's account at Bank B, representing Economic Injury Disaster Loan proceeds. The forfeiture allegation seeks approximately $421,900 and a personal money judgment of approximately $30,000.

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Full text

D
RECEIVEDB
12/17/2020 UNITED STATES DISTRICT COURT
. BRUTO N NORTHERN DISTRICT OF ILLINOIS
THOMA.SDG IS TRICT COUR
T
CLER K , U .S EASTERN DIVISION

UNITED STATES OF AMERICA Case No.: 20cr922

v. Violations: Title 18, United States
Code, Sections 1014, 1343, 1957
CARLOS SMITH
UNDER SEAL
Judge Manish S. Shah
COUNT ONE Magistrate Judge Sheila M. Finnegan

The SPECIAL JANUARY 2020 GRAND JURY charges:

1. At times material to this indictment:

a. Bank A was a financial institution, the deposits of which were

insured by the Federal Deposit Insurance Corporation.

b. U.S. Small Business Administration ("SBA") was a United States

government agency that provided support to small businesses.

c. CLS Financial Services, Inc. was a for-profit corporation

incorporated in Indiana in 2014.

d. CARLOS SMITH was the CEO and owner of CLS Financial

Services, Inc. SMITH resided in Park Forest, Illinois.

e. The Coronavirus Aid, Relief, and Economic Security ("CARES")

Act was a federal law enacted in or around March 2020 and designed to provide

emergency financial assistance to the millions of Americans who were suffering the

economic effects caused by the COVID-19 pandemic.

f. One source of relief provided by the CARES Act was the

authorization of up to $349 billion in forgivable loans to small businesses for job
retention and certain other expenses, through a program called the Paycheck

Protection Program ("PPP"). In or around April 2020, Congress authorized over $320

billion in additional funding for PPP loans.

g. In order to obtain a PPP loan, a business submitted a PPP loan

application, which was signed by an authorized representative of the business. The

PPP loan application required the business (through its authorized representative)

to acknowledge the program rules and make certain affirmative certifications
regarding its eligibility. In the application, the small business's authorized

representative was required to provide, among other things, the business's average

monthly payroll expenses and number of employees. These figures were used to

calculate the business's eligibility and the amount of money it could receive under the

PPP. In addition, the authorized. representative was required to answer questions

relating to the representative's criminal history. Applicants were also required to

make good faith certifi.cations, including that economic uncertainties have
necessitated their loan requests for continued business operations.

h. PPP loan proceeds were required to be used by the business for

certain permissible expenses-payroll costs, interest on mortgages, rent, and

utilities. The PPP allowed the interest and principal on the PPP loan to be entirely

forgiven by the Sma1l Business Administration ('SBA") if the business spent the loan

proceeds on these items within a designated period of time and used at least a certain

percentage ofthe PPP loan for payroll expenses.
To gain access to funds through the PPP, small businesses applied

through frnancial institutions participating in the PPP and received the loans directly

from those financial institutions as the lender.

j. Participating financial institutions required applicants for PPP

loans to provide truthful information about the business and its owner, including

truthful information about the business's operating expenses, the business's
employees, how the PPP loan would be used, and the applicant's criminal history,

which information was material to lenders' approval, terms, and funding of loans-

k. Another source of relief provided by the CARES Act was the

expansion of the Economic Injury Disaster Loan ("EIDL") Program, which provided

loan assistance (including advances of up to $10,000) for businesses with 500 or fewer

employees and other eligible entities for loans up to $150,000. The EIDL Program

was designed to provide economic relief to small businesses that are experiencing a

temporary loss of revenue.

l. To gain access to funds through the EIDL Program, small

businesses applied through the SBA via an online portal and application. As part of

the EIDL application process, the SBA required applicants to submit truthful
information concerning the business and the business owner, including information

as to the gross revenues for the business prior to January 31,2020; the cost of goods

sold; and information as to any criminal history of the business owner. Applicants

were required to electronically certifir that the information provid.ed was accurate and
were warned that any false statement or misrepresentation to the SBA may result in

sanctions, including criminal penalties.

m. EIDL funds were issued to the small business applicants directly

from the United States Treasury.

n. EIDL Advance was a grant program offered together with the

EIDL program. The amount of the advance issued to the small business applicant

was determined by the number of employees indicated on the EIDL application,

$1,000 per employee, up to $10,000. )

o. EIDL loan proceeds were permitted to be used to pay an array of

working capital and normal operating expenses, such as continuation of health care

benefits, rent, utilities, and fixed debt payments.

2. Beginning in or around June 2020, and continuing until in or around

October 2020, in the Northern District of Illinois, Eastern Division, and elsewhere,

CARLOS SMITH,

defendant herein, knowingly d.evised, intended to devise, and participated in a

scheme to defraud, and to obtain money and property from government relief

programs by means of materially false and fraudrilent pretenses, representations,

and promises, as further described below.

3. It was part of the scheme that defendant SMITH submitted applications

for loans under the PPP and EIDL programs seeking hundreds of thousands of dollars

for CLS Financial Services, Inc., that contained false statements, misrepresentations,
and omissions related to CLS Financial Services, Inc. and SMITH's prior criminal

record.

The PPP Loan

4. It was part of the scheme that, on or about July 27 , 2020, SMITH, in his

capacity as authorized representative of CLS Financial Services, Inc., applied for a

PPP loan in the amount of $270,000 from Bank A.

5. It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH represented to Bank A on the PPP loan application that the

PPP loan was "necessary to support the ongoing operations of the business." SMITH

knew at the time that CLS Financial Services, Inc. had no "ongoing operations."

6. It was further part of the scheme that, in ord.er to obtain a PPP loan
from Bank A, SMITH represented on the loan application that the PPP loan "would

be used to retain workers and maintain payrolL or make mortgage interest payments,

Iease payments, and utility payments." SMITH knew at the time that CLS Financial

Services, Inc. had no employees or payroll, and that CLS Financial Services, Inc.

would not use the PPP funds for these expenses.

7. It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH fraudulently represented on the loan application that CLS

Financial Services, Inc. had 61 employees and an average monthly payroll of

$108,000, to make it falsely appear that CLS Financial Services, Inc. had payroll

expenses. SMITH knew at the time that CLS Financial Services, Inc. had no

employees or payroll.
8. It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH attached falsified tax forms, to make it falsely appear that CLS

Financial Services, Inc. had paid employee wages and had withheld federal income

taxes from the employees' wages in 2019 alo.d 202O. SMITH knew at the time that

CLS Financial Services, Inc. had no employees or payroll, and knew that the attached

tax forms were falsified.

9. It was further part of the scheme that, in order to obtain a PPP loan
from Bank A, SMITH fraudulently represented that, within the last 5 years, SMITH

had not been convicted. of or pleaded guilty to a felony. SMITH knew at the time that

he had been convicted of a felony within the last 5 years.

10. It was further part of the scheme that, through the submission of the
false and fraudulent PPP loan application, SMITH caused Bank A to disburse a PPP

Ioan of $270,000 on or about September 23,202O into a bank account that defendant

maintained at Bank A in the name of CLS Financial Services, Inc., and of which

defendant was the only signatory. SMITH knew at the time that neither he nor CLS

Financial Services, Inc. was entitled to the PPP loan funds.

The EIDI,

11. It was further part of the scheme that, on or about April 2,2020, SMITH,
in his capacity as authorized representative of CLS Financial Services, Inc., applied

for an EIDL from the SBA.

12. It was further part of the scheme that, in order to obtain an EIDL from
the SBA, SMITH fraudulently represented that, for the L2 months prior to the
disaster, CLS Financial Services, Inc. had gross revenue of $1,826,000 and cost of

goods of $860,000, to make it falsely appear that CLS Financial Services, Inc. had

such revenue and cost of goods during that time period.

13. It was further part of the scheme that in order to obtain an EIDL from
the SBA, SMITH fraudulently represented on the loan application that CLS
Financial Services, Inc. had 2 employees. SMITH knew at the time that CLS

Financial Services, Inc. had no employees.

14. It was further part of the scheme that, through the submission of the
false and fraudulent EIDL application, SMITH caused the SBA to disburse an EIDL

of $149,900 on or about June 8,2020, into a bank account that defendant maintained

at Bank B in the name of CLS Financial Services, fnc., and of which defendant was

the only signatory. SMITH knew at the time that neither he nor CLS Financial

Services, Inc. was entitled to the EIDL funds.

15. It was further part of the scheme that, through the submission of the
false and fraudulent EIDL application, SMITH caused the SBA to disburse an EIDL

advance of $2,000 on June 12, 2020, into a bank account that defendant maintained

at Bank B in the name of CLS Financial Services, Inc., and of which defendant was

the only signatory. SMITH knew at the time that neither he nor CLS Financial

Services, Inc. was entitled to the EIDL advance funds.

16. It was further part of the scheme that SMITH misrepresented,
concealed, and hid and caused to be misrepresented, concealed., and hidden, certain
material facts, including the acts and purposes of the acts done in furtherance of the

scheme.

L7 . On or about July 27, 202l,in the Northern District of lllinois, Eastern

Division, and elsewhere,

CARLOS SMITH,

defendant herein, for the pulpose of executing the scheme, knowingly caused to be

transmitted by means of wire communication in interstate commerce certain

writings, signs, signals, and sounds, namely an internet transmission of a PPP loan

application for CLS Financial Services, Inc., processed. through Bank A servers

located outside of lllinois, and received by Bank A;

In violation of Title 18, United States Code, Section 1343.
COUNT TWO

The SPECIAL JANUARY 2020 GRAND JURY turther charges:

1. Paragraphs 1-16 of Count One are realleged and incorporated here.

2. On or about June 8, 2020, in the Northern District of Illinois, Eastern

Division, and elsewhere,

CARLOS SMITH,

defendant herein, for the purpose of executing the scheme, knowingly caused to be

transmitted by means of wire communication in interstate commerce certain

writings, signs, signals, and sounds, namely, an interstate wire transmission of

approximately $149,900 from the SBA Finance Center, located. in Colorado, to the

CLS Financial Services fnc. account at Bank B, which funds represented the proceeds

of an Economic Injury Disaster Loan to CLS Financial Services, Inc.;

In violation of Title 18, United States Code, Section 1343.
COUNT THREE

The SPECIAL JANUARY 2020 GRAND JURY further charges:

1. Paragraph 1 of Count One is realleged and incorporated here.

2. On or about JuLy 27 , 2020, in the Northern District of Illinois, Eastern

Division, and elsewhere,

CARLOS SMITH,

defendant herein, knowingly caused fp.Ise statements to be made to Bank A, the

deposits of which were insured by the Federal Deposit Insurance Corporation, with

the intent to influence the actions of Bank A concerning a Paycheck Protection

Program loan application, in that defendant stated:

(a) CLS Financial Services, Inc. had 61 employees and an average monthly
payroll of $108,000;

@) CLS Financial Services, Inc. was in operation on February 15, 2020, and
had employees for whom it paid salaries and payroll taxes or paid
independent contractors, as reported on Form(s) 1099-MISC;

(d) Within the last 5 years, defendant had not been convicted of or pleaded
guilty to any felony;

when defendant knew that such statements were false;

In violation of Title 18, United States Code, Section lOL4.
COUNT FOUR

The SPECIAL JANUARY 2O2O GRAND JURY turther charges:

1. Paragraphs 1-16 of Count One are realleged and incorporated here.

2. On or about October 6,2020, in the Northern District of Illinois, Eastern

Division, and elsewhere,

CARLOS SMITH,

defendant herein, knowingly engaged in a monetary transaction, namely, the deposit

of check number 5009 into an account at Credit Union A, drawn from Bank B and

made payable to Carlos Smith, in the amount of $30,000, which was in and affecting

commerce and involving criminally derived property of a value greater than $10,000,

such property having been derived from a specified unlawful activity, namely wire

fraud, in violation of Title 18, United States Code, Section L343, as charged in Count

T\to;

In violation of Title 18, United States Code, Section 1957.
FORFEITURE ALLEGATION

The SPECIAL JANUARY 2020 GRAND JURY further alleges:

1. Upon conviction of an offense in violation of Title 18, United States Code,

Sections l0L4 and 1343, as set forth in this Indictment, defendant shall forfeit to the

United States of America any property that constitutes and is derived from proceeds

traceable to the offense, as provided in Title 18, United States Code, Section

e82(a)(2XA).

2. Upon conviction of an offense in violation of Title 18, United States Code,

Section L957, as set forth in this Indictment, defendant shall forfeit to the United

States of America, alny property involved in such offense, and any property traceable

to such property, as provided in Title 18, United States Code, Section 982(a)(1).

3. The property to be forfeited includes, but is not limited to:

a. A personal money judgment in an amount equal to the proceeds

derived from the offenses in violation of Titte 18, United States Cod.e, Sections L0l4

and 1343, estimated to be approximately $421,900; and

b. A personal money judgment in an amount equal to the funds
involved in the violation of Title 18, United States Code, Section 1957, estimated to

be approximately $30,000.
4. If any of the property described above, as a result of any act or omission

by a defendant: cannot be located upon the exercise of due diligence, has been

transferred or sold to, or deposited with, a third party, has been placed beyond the

jurisdiction of the Court; has been substantially diminished in value; or has been

commingled with other property which cannot be divided without diffrculty, the

United States of America shall be entitled to forfeiture of substitute property, as

provided in Title 21, United States Code, Section 853(p).

A TRUE BILL:

FOREPERSON

Sigued by Matthew Madden on behalf of the
UNITED STATES ATTORNEY

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