Defendant’s Sentencing Memorandum — United States v. Stephen Smith, No. 20-CR-196-2 (Dkt. 139, E.D. Wis.)

Summary

Stephen Smith's lawyer, Craig S. Powell, asks the Eastern District of Wisconsin for no more than 6-12 months of imprisonment, against a guideline range of 41-51 months that the government asks the court to apply at its low end. The memorandum says Smith, a Milwaukee Public Schools substitute teacher left without work when schools closed on March 13, 2020, joined a scheme run by older brother Thomas Smith and filed a fraudulent application for a $242,500 PPP loan, then brought in Deon Petty, who received a $155,000 loan. It disputes the government's claim that Stephen Smith took part in the Davis and Hamilton loans. It names Samuel Davis, who received 6 months of confinement, as the closest comparison and proposes restitution of $397,500.

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Full text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
_________________________________________________________________________

UNITED STATES OF AMERICA,

v. Case No. 20-CR-196-2

STEPHEN SMITH,

_________________________________________________________________________

DEFENDANT’S SENTENCING MEMORANDUM
_________________________________________________________________________

Amidst a tsunami of fear and uncertainty cast upon the local and global

population by a once-in-a-lifetime pandemic, Stephen Smith reached out and

grabbed a lifeline dangled by his older brother Thomas. Such was the

“unprecedented crisis” —as the Government aptly describes it—that Smith

betrayed a law-abiding lifetime of positive contributions to his community for

short-term financial security in the form of fraudulently obtained Government

loans. He now comes before the Court for sentencing after pleading guilty for his

role in a scheme orchestrated and directed by his brother to obtain loans under the

CARES Act for which he and others did not honestly qualify. The Government is

seeking a sentence at the low end of the 41–51-month guideline range. Smith asserts
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that such a sentence would be far greater than necessary to achieve the purposes of
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sentencing as they relate to him individually, and that a sentence of no more than 6-

12 months of imprisonment is sufficient to do so under 18 U.S.C. § 3553(a).

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BACKGROUND

In March of 2020, Smith was working for Milwaukee Public Schools as a

special education substitute teacher. With the exception of a 2-year hiatus around

2013-14, it is a job Smith lovingly undertook for 15 years. (PSR, ¶ 120). In the weeks

leading up to March 13, 2020, the media was reporting more and more on a novel

and deadly coronavirus sickening large swaths of the population in Asia and

Europe and seemingly working its way here. And then, on March 13, 2020, it was

here, in Stephen Smith’s life, as Governor Tony Evers ordered all public and private

schools to close. Though the order was originally temporary, by mid-April it was

clear that MPS would not be returning to anything close to normal for the indefinite

future. What that meant to Smith was that he was without work and the full and

steady paycheck that came with it. Indeed, with essentially the entire U.S. economy

shut down, there were no prospects for alternative work on the horizon. As it was

for millions of Americans, it was a dark and uncertain time for Smith with fear and

desperation lurking around the corner. In Wisconsin, new unemployment claims

soared to over 100,000 by March 24, 2020 and the system simply could not keep up,

with over 675,00 claims remaining unpaid towards the end of May, 20201.

The Federal government stepped in to try and stem the tide, passing the

HART POWELL, SC CARES Act with its Paycheck Protection Program loans designed to help small
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businesses keep employees on the payroll. Smith’s brother Thomas was a small-

1
Radcliffe, JR and Caughey, Erin, A Timeline of How the COVID-19 Pandemic Has Played Out in
Wisconsin, Milwaukee Journal Sentinel, March 11, 2011. Accessible at: https://www.jsonline.com/in-
depth/news/local/milwaukee/2021/03/11/timeline-how-covid-19-has-played-out-wisconsin/4522813001/

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business owner and used the program, legitimately at first, for his own businesses.

It turned out to be easy, so easy in fact that Thomas saw an opportunity to use

others to obtain similar loans in exchange for a cut.

As a substitute teacher for a local public school, the CARES Act was of no

help to Smith. Smith had a defunct LLC, however, that Thomas believed Smith

could use to obtain a loan using fudged employment numbers. Faced with lost

income and uncertain prospects for returning to work at any point in the near

future, Smith made the first criminal choice of his life, working with Thomas to file

a fraudulent loan application for a $242,500 PPP loan. Smith actually had designs

on using the money to get his old auto transport business back up and running, but

the scheme unraveled far too fast for anything to happen.

Thomas was not confronted with the same financial stress and urgency as

his brother. As he candidly conceded ahead of his own sentencing, Thomas saw an

opportunity and acted out of greed. Thomas sought out and helped create

fraudulent loan applications for Samuel Davis, Jonathan Henley, Robert Hamilton,

and Tarone Woods. In each instance, he commanded a hefty percentage of the loan

proceeds for his assistance. Smith was not involved in obtaining any of those loans.

Thomas also asked Smith if he knew anybody with an LLC or company who

HART POWELL, SC would want to get a loan. Smith went to Marvin Fitzgerald, a young man Smith
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had known since he coached and mentored him as a child. They were very close,

and Smith believed that Marvin was struggling financially also and that this might

be a way for him to get some relief. Fitzgerald, however, did not have an LLC or

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company. His friend Deon Petty did, however, and Fitzgerald introduced Petty to

Smith. Smith, in turn, got Petty involved with Thomas, who created the necessary

(and fraudulent) loan documents for Petty’s application. Petty received a $155,000

loan, and he gave some of the proceeds to both Smiths and to Fitzgerald. In an

obviously misguided effort to “help” Fitzgerald and obtain additional funds,

Thomas, Smith and Fitzgerald attempted to put Fitzgerald in a position to receive

PPP funds through an entity called New Beginnings Family Services, LLC. That

application was denied, and in short order everyone’s accounts were frozen. The

gig was up, the indictments came, and Smith now appears before the Court having

accepted responsibility for his actions.

THE GUIDELINES

The PSR accurately calculates the guideline range at 41-51 months, based on

an adjusted offense level of 22 in Criminal History Category I. (PSR, ¶ 127). This

was the guideline range contemplated in Smith’s plea agreement.

3553(a) FACTORS

It is the Court’s obligation to impose a sentence “sufficient, but not greater

than necessary, to comply with the purposes of sentencing: to reflect the

seriousness of the offense, promote respect for the law, and provide just

HART POWELL, SC punishment; deterrence; protection of the public from the defendant; and provision
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of needed correctional treatment. 18 U.S.C. § 3553(a).

The guidelines are but an advisory starting point for the Court. The Court

has discretion to impose an appropriate sentence for the individual defendant and

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the surrounding circumstances, irrespective of the calculated guideline range. See

United States v. Musgrave, 883 F.3d 709, 715 (7th Cir. 2018) And while the Court

must consider the guideline range as part of its sentencing analysis, it “may not

perfunctorily impose a guidelines sentence or even presume that such a sentence is

appropriate in a given case.” United States v. Warner, 792 F.3d 847, 855 (7th Cir.

2015)

A. The Nature and Circumstances of the Offense

As described in greater detail above, Smith’s involvement in the fraudulent

scheme was triggered by the financial desperation and uncertainty brought to bear

by an unprecedented public health crisis. It is undeniable that but for the massive

impact of the global COVID-19 pandemic, Stephen Smith would not have put

himself in the position he is in today.

The Government does overstate Smith’s role, repeatedly asserting that Smith

was involved in the Davis and Hamilton loans. Smith denies that is true. (See

Revised PSR Addendum, Dkt. #136, pg. 32-38) The Government’s basis for this

assertion is that the co-actors said so (Id.); but the circumstances suggest that

Smith’s denial carries more weight. First, as to the Davis loan, while Davis and

Smith were college roommates, Smith had introduced Davis to Thomas long before

HART POWELL, SC the pandemic or the CARES Act existed. Davis told authorities that Thomas
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approached him about obtaining a PPP loan, and Thomas prepared all of the

paperwork. This loan was done before any of the other loans that are the subject of

this indictment, including Smith’s. Davis seems to believe Smith was “involved” in

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the loan only because Smith rode with Thomas when he met Davis to pick up the

$75,000.00 check that Davis had made out to Thomas’s company. There is no

evidence that Smith was involved in recruiting Davis for the loan, helped prepare

the loan application, intended to share in the proceeds of the loan, or did share in

the proceeds of the loan. In short, Smith was simply not involved in Davis’s loan.

As to the Hamilton loan, Smith’s role, such as it was, was telling Hamilton

that Thomas had gotten a PPP loan and that Hamilton could talk to him about the

process. Notably, this conversation also occurred before Smith filed his loan

application. Hamilton had known both of the Smith brothers for years; it did not

take an introduction by Smith for Hamilton to get to Thomas. Smith did not

suggest or otherwise indicate to Hamilton that he pursue a fraudulent loan.

Thomas, again, prepared all the paperwork for this loan. Hamilton’s belief in

Smith’s involvement seems to based on Thomas’s reported suggestion to Hamilton

that he pay Smith $10,000.00. According to Hamilton, this suggestion by Thomas

was made after Hamilton had delivered a check for $30,000 to Thomas. Smith never

asked for any of Hamilton’s loan proceeds and he had no idea that Thomas made

that request of Hamilton, or even Thomas actually did. Furthermore, Hamilton

himself told authorities that he had no idea that Smith was involved in the fraud

HART POWELL, SC until after the indictment came down. It is difficult to imagine Smith being involved
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in Hamilton’s fraudulent loan without Hamilton having any indication that was

the case. In addition, Hamilton’s application was done at the same time as Smith’s.

Again, Smith’s involvement in the Hamilton loan might be more believable if Smith

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himself had already secured a loan and would thus be in a position to tell Hamilton

how the process worked. But that is not the case; Thomas prepared the loan

applications for Smith and Hamilton at essentially the same time.

Smith was responsible for bringing Fitzgerald and Petty into the fold, but he

did not play that role, or any consequential role, in the Davis or Hamilton loans.

B. The History and Characteristics of the Defendant

Smith is 42 years old and finds himself in the criminal justice system for the

first time in his life. He was born and raised in Milwaukee in a stable, loving

household. He graduated from Whitefish Bay High School in 1996, and earned a

bachelor’s degree in Marketing from UW-Lacrosse and a Masters in Business

Administration from Cardinal Stritch University.

He has dedicated his adult life to teaching and mentoring young kids in

Milwaukee, both as a long-term substitute teacher for special education students at

MPS, and as a youth basketball coach. He has guided numerous young men from

Milwaukee’s playgrounds to college, including some of the country’s most

prestigious universities. (See Exh. 1, Letter of Renee Johnson; Exh. 2, Letter of Julie

Jackson).

As the PSR and attached letters attest, members of his family and of the

HART POWELL, SC community describe him in glowing terms, and all were shocked to learn of his
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involvement in this offense. His brother Robert described him as a “kind, smart,

and driven person” who “gets along with everybody and is well-respected.” (Dkt.

#136, ¶ 108). His lifelong friend, Antwan Harris, who is an education administrator

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in Minnesota, described Smith as “an industrious, hard-working family man who is

community minded and other-centered.” (Exh. 3, Letter of Antwan Harris). His

wife, Maronnia, described Smith as “being a great person who is helpful and

loving.” (Dkt. #136, ¶ 110)

Unfortunately, Smith’s participation in the scheme has come at a significant

personal cost. He and his wife have separated as a result. Maronnia described this

case as having a “profound” impact on her and her family. She and Smith have

separated because Smith’s involvement in this offense hurt her and turned her life

upside down. She still believes Smith “can return to being a great asset to the

family and community” and “the same person he was before his involvement in

this offense.” She hopes that their marriage will survive but acknowledges that

there is uncertainty because “their life is not in their own hands anymore.” (Id.)

In addition, his mental health has suffered greatly as a result of this case. He

began getting treatment for anxiety problems in May of 2020, after he engaged in

the criminal behavior at issue but before the involvement of law enforcement. He

has engaged in counseling and continues to do so to manage the mental health

issues that have come to the for based on his behavior that led to this case. (Dkt.

#136, ¶113-14) Smith also has significant medical challenges. He is a type-2 diabetic

HART POWELL, SC who requires twice-daily injections. He also suffers from neuropathy in his feet and
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takes medication for high blood pressure. He also contracted COVID-19 during the

pendency of the case and became very ill, taking nearly 2 months to fully recover.

(Dkt. #136, ¶112)

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C. Appropriate Sentence

In devising a sentence, the Court must consider the factors set forth in 18

U.S.C. §3553(a) and impose a sentence sufficient but not greater than necessary to

satisfy the purposes of sentencing delineated in § 3553(a)(2): (a) to 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;

defendant with needed educational or vocational training, medical care, or other

correctional treatment in the most effective manner. In addition, the Court must

consider the need to avoid disparities in sentencing. 18 U.S.C. § 3553(a)(6).

1. Providing just punishment

The conduct at issue here is undoubtedly serious, as can be said for

essentially all criminal conduct, but it is also relatively small-scale in light of the

types of loss numbers that appear typical for PPP loan fraud. (See, e.g. Dkt #138,

pg. 12; Govt. Sent. Memo identifying sentences imposed in other cases around the

country). So while providing just punishment is an appropriate consideration, a

guidelines sentence in this case would be beyond what is necessary to satisfy this

sentencing purpose.

HART POWELL, SC 2. Deterrence
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A lengthy period of imprisonment is not needed to achieve sufficient

deterrence in this case. Smith has paid a heavy price already. He has greatly

damaged his standing in the community, which is a huge part of who he is and has

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been for his entire adult life. He acted in a way contrary to the ideals he preaches to

his students and kids that he coaches. He has put his marriage in grave jeopardy,

and he will be under a significant restitution order that will take him years to

repay. See, Warner, 792 F.3d at 861 (recognizing that financial penalties may serve as

a deterrent).

3. Protection of the Public from Further Crimes by Smith

There is no need to protect the public from further crimes by Smith through

incarceration. At 42-years-old, Smith comes before the Court for his first contact

with the criminal justice system. His crime was driven by a once-in-a-lifetime

public health crisis that turned his world upside down and left him without work

and no prospects for work given the havoc wreaked by the virus. It is appropriate

to discount his behavior under these circumstances, particularly because he has no

history of greed, manipulation or malfeasance. There is simply nothing to indicate

that Smith presents a risk of repeat criminal behavior.

4. Providing Smith with Needed Programming and Care in Most

Effective Manner

Smith has an advanced education and no treatment needs of any kind that

would most effectively be provided in an institutional setting. He is able to work,

HART POWELL, SC and the community and victims would be better served by Smith being allowed to
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return to the community quickly to work and pay towards the substantial

restitution obligation that will be imposed upon him.

5. Need for the Sentence to Avoid Unwarranted Disparities

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It is clear that Thomas Smith was the driving force behind this criminal

scheme. Smith is nowhere near the level of culpability of his brother Thomas, the

undeniable leader and conductor of the scheme, who had a criminal record and

received a sentence of 51 months. The other co-defendants sentenced to date have

received:

• Robert Hamilton: 6 months confinement, 2 years supervised release

• Samuel Davis: 6 months confinement, 2 years supervised release

• Deon Petty: 1 year and 1 day of confinement, 2 years of supervised

release

• Marvin Fitzgerald: 2 years probation

Samuel Davis is the best comparison for Smith. Thomas approached Davis

about applying for a PPP loan. Thomas prepared a fraudulent loan application for

Davis, the loan was funded, and Davis paid Thomas $75,000.00. Davis went out

and brought another person, Jonathan Henley, to Thomas to participate in the

scheme. Thomas then prepared a fraudulent loan application for Henley for

$212,500, of which Thomas demanded $112,500. The Government has asserted that

Davis “appears to have committed this offense due to a desire to provide for his

family and restart his business. . .” (Dkt. #103, Pg. 6) Davis also had no criminal

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record, had a steady employment history, and ran a “mentorship program that
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Like Davis, Smith had no criminal record and was brought into the scheme

by Thomas. Like Davis, Thomas prepared Smith’s fraudulent loan paperwork and

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Smith gave him $65,000 of the proceeds. Like Davis, the Government

acknowledges that Smith’s entry to the scheme was not driven by greed, but by a

“desire to provide for his family, as he was unemployed as a result of the

pandemic.” (Dkt. #138, pg. 10) Like Davis, Smith sought out others to connect with

Thomas for purposes of applying for loans. The only distinction here is that Smith

brought on two individuals —Petty and Fitzgerald—while Davis only brought in

Henley. This provides some basis for distinguishing Smith from Davis for

sentencing purposes, but not significantly.

The Government has listed several cases from the around the country to

indicate the types of sentences being imposed for PPP fraud, and those examples

support the below-guidelines sentence Smith seeks here. (Dkt. #138, pg. 12) The

two longest sentences —78 and 41 months—involved losses of $3.9 million and $1.9

million, respectively. The two shorter sentences—12 months and 60 days—

involved losses of $1.4 million and $900,000, respectively. With loss as the primary

driving force behind sentencing in fraud cases, the loss attributable to Smith’s

conduct is below each of the examples provided by the Government, and

significantly so as to three of them.

RESTITUTION

HART POWELL, SC Lastly, Smith asserts that his restitution amount should be $397,500, with
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$155,000 joint and several with Deon Petty and Thomas Smith, and $242,500 joint

and several with Thomas Smith. The Government’s position on restitution seeks on

an equitable basis to apportion restitution amongst the co-defendants by the

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individual loans with which each was involved. (See, Dkt. #87). As detailed above,

Smith did not have any hand in the Davis and Hamilton loans; accordingly, per the

Government’s basis for apportionment, Smith should not be held responsible for

those loans in a restitution order.

Dated at Milwaukee, Wisconsin, this 8th day of July, 2021.

Respectfully submitted,

___________________________
Craig S. Powell
HART POWELL, S.C.
735 North Water Street, Ste 1212
Milwaukee, WI 53202
Telephone: (414) 271-9595
Telefax: (414) 271-3701
cspowell@kohlerandhart.com

HART POWELL, SC
ATTORNEYS AT LAW
735 NORTH WATER STREET
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MILWAUKEE, WI 53202
(414) 271-9595

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