Criminal Complaint and Affidavit — Samuel Morgan Yates (Eastern District of Texas)
Summary
Criminal complaint stamped FILED MAY 18 2020 in the Eastern District of Texas, Texarkana Division, Case No. 5:20-MJ-15, against Samuel Morgan Yates. It lists wire fraud, bank fraud, false statements to a financial institution, and false statements to Small Business Administration for conduct from April 14, 2020 to present in the county of Bowie. The complaint relies on the affidavit of Cole Ashcraft, a Special Agent with the Treasury Inspector General for Tax Administration. The affidavit states that on or about May 5, 2020, a Ready Capital representative exchanged emails with Yates about Lone Star Tuning, and quotes Yates writing that the business was not operable in 2019 and that he accumulated enough funding to begin operations on 1/1/20.
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“Criminal Complaint and Affidavit — Samuel Morgan Yates (Eastern District of Texas).”
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AO 91 (Rev. 11/11) Criminal Complaint
United States District Court
for the
Eastern District of Texas
FILED
MAY 18 2020
United States of America
U.S. District Court
v.
/ J Texas Eastern
Case No.
SAMUEL MORGAN YATES ~ Az~P«
5:20-MJ-15
Defendant(s)
CRIMINAL COMPLAINT
I, the complainant in this case, state that the following is true to the best of my knowledge and belief.
On or about the date(s) of April 14, 2020 to present in the county of Bowie in the
Eastern District of Texas , the defendant(s) violated:
Code Section Offense Description
18U.S.C. §1343 Wire Fraud
18 U.S.C. § 1344 Bank Fraud
18 U.S.C. § 1014 False Statements to a Financial Institution
15 U.S.C. § 645(a) False Statements to Small Business Administration
This criminal complaint is based on these facts:
See attached affidavit of Special Agent Cole Ashcraft, Treasury Inspector General for Tax Administration.
sf Continued on the attached sheet.
APPEARING BY PHONE AT 202-308-0518
Complainant's signature
Special Agent Cole Ashcraft, TIGTA
P inted name and title
/
Attested to by the applicant in accordance with the requirements of Fe R Cr. P. 4.1 bvjplephone
/ £/
/J. • / /
Date: X
Judge s signqture
City and state: Texarkana, Texas Caroline M. Craven, United States Magistrate Judge
Printed name and title
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
UNITED STATES OF AMERICA )
) UNDER SEAL
v. )
) 5:20-MJ- 15
SAMUEL MORGAN YATES, )
)
Defendant. )
AFFIDAVIT IN SUPPORT OF CRIMINAL COMPLAINT
I, Cole Ashcraft, being first duly sworn, hereby depose and state as follows:
Affi nt s Background
1. I am a Special Agent with the Treasury Inspector General for Tax Administration
( TIGTA ) and have been since December 2019. Prior to that, I was a Special Agent with the U.S.
Postal Service Office of Inspector General starting in 2013 and was assigned to their Computer
Crimes Unit for the majority of that time. I have received formal training in both computer science
and the investigation of computer crimes, including network intrusions and computer forensics. I
have investigated or assisted in the investigation of numerous cases involving fraudulent activity
in connection with computers. I am currently assigned to TIGTA s Cybercrime Investigations
Division and the FBI Washington Field Office Cyber Task Force. I investigate violations of federal
laws regarding the programs and operations of the Internal Revenue Service ( IRS ) and federal
tax administration. I have been a sworn law enforcement officer during all times herein.
2. Throughout the course of my career, I have conducted an array of criminal
investigations involving money laundering, bank fraud, and many other illegal schemes impacting
financial institutions. I have experience conducting search, seizure and arrest warrant operations.
Recently, I have been assigned to work with the U.S. Department of Justice and other law
1
enforcement partners to investigate possible fraud associated with the stimulus and economic
assistance programs created by the federal government in response to the COVID-19 pandemic.
3. This affidavit is made in support of a criminal complaint charging Samuel Yates
with 18 U.S.C. § 1343 (Wire Fraud), 18 U.S.C. § 1344(2) (Bank Fraud), 18 U.S.C. § 1014 (False
Statements to a Financial Institution), and 15 U.S.C. § 645(a) (False Statements to the Small
Business Administration).
4. This affidavit is based on my personal investigation and investigation by others,
including federal and local law enforcement officials whom I know to be reliable and trustworthy.
The facts contained herein have been obtained by interviewing witnesses and examining
documents obtained in the course of the investigation as well as through other means. This
affidavit does not include every fact known to me about this investigation, but rather only those
facts sufficient to establish probable cause.
Probable Cause
5. On March 27, 2020, the U.S. President signed a $2 trillion stimulus bill called the
CARES Act, which was intended to ameliorate the economic impact of the COVID-19 Pandemic.
See Pub. L. 116-136. The CARES legislation authorized up to $349 billion in forgivable loans to
small businesses to pay their employees during the pandemic. In or around April 2020, Congress
authorized up to $310 billion of additional funding. See Pub. L. 116-139. This loan program is
known as the Paycheck Protection Program ( PPP ). It is administered by the U.S. Small Business
Administration ( SBA ), a federal government agency headquartered at 409 3rd Street, SW,
Washington, D.C. 20416. See 13 C.F.R. Part 120. The PPP provides small businesses with funds
to pay up to eight weeks of payroll costs, including benefits. Funds can also be used to pay interest
on mortgages, rent, and utilities. The SBA provides funds in the form of loans that may be fully
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forgiven if used for payroll costs, interest on mortgages, rent, and utilities (the program requires
that at least 75% of the loan amount be used for payroll costs to be considered for
forgiveness). Under the PPP, the ma imum loan amount for which an applicant may apply is the
lesser of $10 million or an amount based upon a payroll-based formula specified in the CARES
Act.
6. Small businesses and sole proprietorships have applied for PPP relief through one of
over 4,900 SBA designated lending institutions. To apply, applicants must complete and transmit
to the lender an SBA Form 2483, which requires the applicant to identify the entity s average
monthly payroll, as calculated according to the requirements of the CARES Act.
7. Once a borrower provides their application to a lender, the lender underwrites the
loan and transmits the application to the SBA via an electronic platform known as ETRAN. Before
a lender submits a PPP loan through ETRAN, the lender must have collected the information and
certifications set forth in the SBA Form 2483. Loans guaranteed under the PPP will be 100%
guaranteed by the SBA, and the full principal amount of the loans may qualify for loan forgiveness.
Fra dulent PPP Loan Application Submitted to Ready Capital
8. Ready Capital is a publicly traded real estate investment trust (REIT) which also
participates in the SBA’s PPP loan program as an SBA Preferred Lender. Ready Capital provided
me an SBA Form 2483 ( the application ) submitted on or about April 14, 2020 and bearing the
signature of Samuel Yates. The application sought a PPP loan for a sole proprietorship called
Lone Star Tuning in Maud, Texas. The application identified Yates as the “Primary Contact for
Lone Star Tuning and its sole owner. To support a PPP loan in the amount of $5,203,400, the
application represented that the sole proprietorship Lone Star Tuning has an average monthly
payroll of $2,081,386 and 412 employees.
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9. According to IRS records and a copy of an IRS Notice CP 575 that Yates provided
in connection with his application, the business was first issued an Employer Identification
Number ( EIN ) on or about March 27, 2020. According to IRS records, Yates represented to the
IRS that the business began operations in September 2014.
10. Ready Capital has provided several documents it received in support of Lone Star
Tuning s application. A review of those documents and records obtained from the IRS
demonstrate that several of the documents provided to Ready Capital in support of the PPP loan
application were falsified and/or included false statements about Lone Star Tuning’s operations:
a. The applicant submitted a Payroll Journal Summary Report document which
purported to list payroll and tax payments for each of the business’s claimed 412
employees, by name. Further investigation revealed that the names of all 412
purported employees also appear in a list of 500 random names found in the source
code of a computer program posted on GitHub, a popular online source code
hosting and software development collaboration platform. The user who posted
this source file describes himself as a programmer located in Nairobi, Kenya and
has no readily discernible connection to Yates. Additionally, I performed an
internet search for multiple names on the list of purported employees and did not
reveal any such persons with those names living in the Maud, Texas area.
b. The application submitted a Payroll Totals Report document which purported to
show totals of payroll expenditures and tax payments for Lone Star Tuning between
approximately January 1,2020 and February 29, 2020. This document claimed the
business had 412 employees, issued 1,648 paychecks, and had payroll expenses of
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$4,893,261.80 for this period. As previously discussed, none of the employees
listed on these files appear to be affiliated with this business or receiving payroll,
c. The applicant submitted an IRS Form 941, an Employer s Quarterly Federal Tax
Return purporting to report wages and federal payroll tax information for Lone Star
Tuning for the first quarter of 2020. According to the form, Lone Star Tuning had
412 employees in the first quarter and paid wages, tips, and total compensation
totaling $6,538,954.20.
i. Based on a search of available IRS records related to the EIN, no such IRS
Form 941 has been filed by Lone Star Tuning for the first quarter of 2020
has been processed by the IRS.1
ii. IRS records also indicate a payroll processor electronically filed a first
quarter 2020 Form 941 for Lone Star Tuning on April 8, 2020 reporting
zero employees and paid wages, tips, and total compensation totaling $0.
(The IRS rejected this return for a technical reason; specifically, the primary
name listed on the Form 941 was Lone Star Tuning, while the primary name
on the EIN in IRS records is Samuel Yates and the secondary name on the
EIN is Lonestar Tuning.)2
11. The PPP application was submitted in the name of Yates, who represented himself
as the sole owner of Lonestar Tuning. In addition, Yates certified that, among other things, [t]he
1 The IRS ordered its employees to evacuate its facilities on or about March 30, 2020 in response to the coronavirus,
which significantly curtailed processing of paper documents submitted to the IRS. If such a document had been
submitted, it would likely still be in the backlog of paper docu ents yet to be processed.
2 The name of the business in IRS records is listed as Lonestar Tuning. The PPP application and Yates
correspondence list the business name as Lone Star Tuning. These variations of the name are used interchangeably
in this affidavit to refer to the business.
5
funds will be used to retain workers and maintain payroll or make mortgage interest payments,
lease payments, and utility payments, as specified under the Paycheck Protection Program Rule.
Yate also certified, 1 understand that if the funds are knowingly used for unauthorized purposes,
the federal government may hold me legally liable, such as for charges of fraud.
12. On or about May 5, 2020, a Ready Capital representative exchanged a series of
emails with Yates to request additional information and supporting documentation regarding Lone
Star Tuning s operations. During this exchange, Yates was asked to provide a copies of the
business s 2019 tax forms and BIN assignment letter to substantiate its existence. Yates
responded, in part:
My business was not operable in 2019, and as such was not required to file a
Schedule C or any Form 941 documents for the 2019 tax year. The planning for
this company began in 2014, and I finally accumulated enough funding to begin
operations on 1/1/20. I have attached a copy of my BIN to this email. [...] I have
attached a copy of my Assumed Name Certificate, which was filed in 2014 to
reserve the business name with my county clerks office.
I searched the online public records portal for the Bowie County, Texas Clerk’s Office and
confirmed the submitted Assumed Name Certificate matched the certificate on file with th t office.
13. When the Ready Capital representative asked for an explanation of the March 27,
2020 issuance date of the BIN, Yates asserted, in part:
The reason that the date on the BIN letter was for March 27th is due to a rare lapse
of thought on my behalf. I forgot to apply for it at the beginning of the year, most
likely due to the large amount of other tasks that needed to be completed at that
time. I realized that I had not applied for it when it came close to time to prepare
my quarterly taxes, and promptly applied for it at that time.
As discussed above, the PPP application for Lone Star Tuning contained a purported Form 941 for
Lone Star Tuning for the first quarter of 2020. The submission of a Form 941 would have required
an BIN, which Yates claimed not to have for Lone Star Tuning.
14. During his email exchange with Ready Capital, Yates further claimed that:
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The company up to this point has not generated even its first dollar of revenue, and
it was not expected to until early Q3 of 2020 but this time frame however is not
valid now due to COVID-19 complications. As a result, I have been personally
financing 100% of the ongoing operations, including the capital that has been
required for payroll thus far. Payroll is handled via Direct Deposit and the funds
required for payroll are deducted from my payroll account the week preceding the
relevant pay date.
15. When asked how the company paid the $6,538,954 first quarter 2020 payroll claimed
on the Form 941 submitted with the loan application despite having no revenue for that quarter,
Yates stated, in part:
[T]he capital required for payroll, and any other business expenses for that matter,
has thus far been financed 100% personally by me. In addition to my personal
holdings, I had access to a considerable amount of capital prior to the COVID-19
outbreak, but sadly this is now gone, and as such, the only way for my business to
continue to operate, and subsequently continue to employ my over 400 employees
was to apply for this PPP loan.
16. Because Ready Capital was unable to obtain sufficient documentation to substantiate
Lone Star Tuning s existence prior to the February 15, 2020 cutoff date for PPP loan eligibility,
Ready Capital did not approve the Lone Star Tuning’s PPP loan application.
Further Investigation into Lone Star Tuning
17. In or around May 2020, I also communicated with law enforcement officers who
have investigated Lone Star Tuning on the ground in Maud, Texas. Members of the law
enforcement team spoke to a Detective in the Bowie County Sherriff s Office where Maud, Texas
is located. The Detective stated that there is no company in the part of the county that Maud
occupies which employs 400 people, nor are there structures large enough for such employment.
18. I have searched for websites related to Lone Star Tuning. I have located none.
19. While applying for a PPP loan for Loan Star Tuning, Yates submitted a purported
commercial lease to Ready Capital that listed Yate’s home address. In this purported lease, a third
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party agreed to rent additional industrial premises to Yates located at a separate, second known
location.
20. Members of the law enforcement team conducted surveillance at both addresses
identified on the lease. The observed activity at the listed addresses did not appear to be
commensurate with the size of business claimed by the loan application. For example, the
structures present at both locations did not appear to be sufficient to support a business with more
than 400 employees.
Fraudulent PPP Loan Application to Square Capital
21. On or about May 15, 2020,1 learned that Yates, after being turned down for a PPP
loan from Ready Capital, had applied for an additional PPP loan through Square Capital, LLC
( Square Capital ), a California-based financial institution participating in the PPP loan program.
I further learned that Lone Star Tuning had obtained a PPP loan through Square Capital s partner,
Celtic Bank, a federally insured financial institution. Celtic Bank disbursed approximately
$533,216 to Yates by depositing the funds in a bank account associated with Yates at Red River
Employees Federal Credit Union, which is a federally insured credit union headquartered in
Texarkana, Texas. Texarkana is located approximately 18 miles from Maud, Texas.
22. On or about May 15,2020,1 subsequently received loan application documents Yates
had submitted to Square Capital, including a first quarter 2020 Form 941 for Lone Star Tuning. I
compared this Form 941 to the first quarter 2020 Form 941 that Yates submitted with his previous
PPP loan application to Ready Capital. Both Form 941 documents list the same Employer
Identification Number, the same home address, and business name: Lone Star Tuning.
23. Despite the fact that two versions of the Form 941 supposedly relate to Lone Star
Tuning, the two versions vary substantially.
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a. In the Form 941 sub itted to Square Capital, Lone Star Tuning claimed only to
employ 145 employees and have quarterly payroll of $2,555,438.
b. In the previous version of the Form 941 submitted to Ready Capital, Lone Star
Tuning claimed 412 employees and quarterly wages of $6,538,954.
24. I also reviewed a list of purported Lone Star Tuning employees that Yates submitted
as part of the Square Capital PPP application. The list includes many of the same random names
from the code posted on Github, as described above. Similarly, an internet search for multiple
names on the list did not reveal any such persons with those names living in the greater Maud,
Texas area. For these reasons, the PPP loan documents submitted to Square Capital appear to be
fraudulent.
Consensual Recording and Video Recording of Yates
25. After receiving the documents, a member of the law enforcement team placed two
phone calls to the phone number listed by Yates on the loan applications. On these call, Yates
confirmed that he had applied for a second loan via Square Capital after Ready Capital denied his
first loan application.
26. According to information provided by Red River Employees Federal Credit Union,
on or about May 15, 2020, Yates traveled to multiple Red River Employees Federal Credit Union
branch locations and began to withdraw funds from the account that had just received the PPP
loan. At one location, Yates withdrew approximately $5,000 in cash. At another location, Yates
withdrew approximately $3,000 in cash. Red River Employees Federal Credit Union provided a
still photograph of surveillance video footage from a drive through teller window where Yates
withdrew cash from the account that had just received the PPP funds. I then compared the video
footage from the credit union to Yates s Texas driver’s license photograph. Due to race, weight,
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facial structure and general appearance, the individual pictured in the surveillance footage and the
driver s license appear to be the same person.
Conclusion
27. Based on my training and experience, and the information provided in this affidavit,
I respectfully submit that there is probable cause to believe that beginning on a date unknown, but
from at least in or around March 2020 to May 2020, within the Eastern District of Texas, Samuel
Yates committed violations of 18 U.S.C. § 1343 (Wire Fraud), 18 U.S.C. § 1344(2) (Bank Fraud),
18 U.S.C. § 1014 (False Statements to a Financial Institution), and 15 U.S.C. § 645(a) (False
Statements to the Small Business Administration).
I declare under penalty of perjury that the statements above are true and correct to the best
of my knowledge and belief.
Appearing by Phone at 202-308-0518
Special Agent Cole Ashcraft
Treasury Inspector General for Tax
Administration
/
Subscribed and sworn to before me on May , 2020, by reliable electronic means
under Rule 4.1 of the Federal Rules of Criminal Procedure., ;
The Honorable Caroline Craven
United States Magistrate Judge
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