Indictment — United States v. Samuel Morgan Yates, Eastern District of Texas (Document 20)

Summary

An indictment and notice of penalty in United States v. Samuel Morgan Yates, No. 5:21-CR-3, in the U.S. District Court for the Eastern District of Texas, Texarkana Division, filed January 14, 2021 as Document 20. Counts One and Two charge wire fraud under 18 U.S.C. § 1343. The grand jury alleges that Yates, owner of the sole proprietorship Lone Star Tuning, applied on or about April 14, 2020 for approximately $5,203,400 in PPP funds stating 412 employees, and on or about May 5, 2020 for approximately $533,216 stating 145 employees, supported by employee names that also appeared in a list of 500 random names found in online source code. It alleges intended losses of at least $5.7 million and a wire transfer of $533,216 from Lender 2 with an approximate date of May 15, 2020. Forfeiture is sought of $504,715.40 seized from a credit union account and a sum of money equal to $28,500.60.

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Case 5:21-cr-00003-RWS-CMC Document 20 Filed 01/14/21 Page 1of11PagelD#: 64

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION

UNITED STATES OF AMERICA

No. 5:21-CR- 3

JUDGE SCHROEDER

V.

SAMUEL MORGAN YATES

Or Lr Cr Orn CO?

INDICTMENT

THE GRAND JURYCHARGES: FILED

General Allegations

JAN 14 2021

At all times relevant to this Indictment:
CLERK, U.S. DISTRICT COURT

The Defendant and Related Entities EASTERN DISTRICT OF TEXAS

Ls Defendant Samuel Morgan Yates was a resident of Maud, Texas, in the
Eastern District of Texas.

ane Lone Star Tuning was a sole proprietorship located in Maud, Texas.
Defendant Samuel Morgan Yates was the 100% owner of Lone Star Tuning, and its
business address was located at his residence. Lone Star Tuning had no operations prior to
January 2020 and generated no revenue.

3. Defendant Samuel Morgan Yates maintained a bank account in his name at
Credit Union 1, a federally insured financial institution located in Texarkana, Texas, in the
Eastern District of Texas.
The Small Business Administration

4. The United States Small Business Administration (“SBA”) was an executive-

branch agency of the United States government that provided support to entrepreneurs and
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small businesses. The mission of the SBA was to maintain and strengthen the nation’s
economy by enabling the establishment and viability of small businesses and by assisting
in the economic recovery of communities after disasters.

3 As part of this effort, the SBA enabled and provided for loans through banks,
credit unions, and other lenders. These loans had government-backed guarantees.

The Paycheck Protection Program

6. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was a
federal law enacted in March 2020 and designed to provide emergency financial assistance
to the millions of Americans who are suffering the economic effects caused by the COVID-
19 pandemic. One source of relief provided by the CARES Act was the authorization of
forgivable loans to small businesses for job retention and certain other expenses, through
a program referred to as the Paycheck Protection Program (“PPP”).

7. To obtain a PPP loan, a qualifying business was required to submit 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 in order to be
eligible to obtain the PPP loan. In the PPP loan application (SBA Form 2483), the small
business (through its authorized representative) was required to state, among other things,
its: (a) average monthly payroll expenses; and (b) number of employees. These figures
were used to calculate the amount of money the small business is eligible to receive under
the PPP. In addition, businesses applying for a PPP loan were required to provide

documentation showing their payroll expenses.

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8. A PPP loan application was processed by a participating lender. Ifa PPP loan
application was approved, the participating lender funded the PPP loan using its own
monies, which were guaranteed by the SBA. Data from the application, including
information about the borrower, the total amount of the loan, and the listed number of
employees, was transmitted by the lender to the SBA in the course of processing the loan.

9. PPP loan proceeds were required to be used on certain permissible expenses,
including payroll costs, mortgage interest, rent, and utilities. Under the applicable PPP
rules and guidance, the interest and principal on the PPP loan is eligible for forgiveness if
the business spent the loan proceeds on these expense items within a designated period of
time and used a certain portion of the loan towards payroll expenses.

Relevant Lenders

10. Lender 1 was a publicly traded real estate investment trust (REIT) that
specialized in non-bank real estate and small-business lending. Lender 1 was based in New
York, New York. Lender | participated in the SBA’s PPP as a lender and, as such, was
authorized to lend funds to eligible borrowers under the terms of the PPP.

11. Lender 2 was a federally insured financial institution and a member of the
Federal Home Loan system based in Salt Lake City, Utah. Lender 2 participated in the
SBA’s PPP as a lender, and, as such, was authorized to lend funds to eligible borrowers
under the terms of the PPP.

12. Company 1 was a publicly traded company that processed credit card
payments, provided retail point-of-sale payment platforms, and offered small-business

lending. Company | was based in San Francisco, California. Company 1 participated in

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the SBA’s PPP by, among other things, acting as a service provider between small
businesses and certain banks, including Lender 2. Small businesses seeking PPP loans
could apply through Company 1 for PPP loans. Company 1 would review the loan
applications. If a loan application received by Company 1 was approved for funding, a
partner bank, such as Lender 2, disbursed the loan funds to the applicant.

The Scheme to Defraud

13. Beginning in or around April 2020, and continuing until in or around May
2020, in the Eastern District of Texas and elsewhere, defendant Samuel Morgan Yates
devised a scheme to defraud Lender 1, Lender 2, and the SBA by filing false and fraudulent
applications for PPP funds.

Purpose of the Scheme to Defraud

14. The purpose of the scheme was for defendant Samuel Morgan Yates to
unjustly enrich himself by obtaining PPP loan proceeds under false and misleading
pretenses, including by making false statements about the operations of Lone Star Tuning
and the intended use of the loan proceeds.

Manner and Means

15. In furtherance of the scheme, on or about April 14, 2020, defendant Samuel
Morgan Yates electronically submitted a false and misleading PPP application to Lender
1 in the name of Lone Star Tuning seeking approximately $5,203,400 in PPP funds (the
“Lender 1 PPP Application”). The Lender 1 PPP Application falsely stated that Lone Star
Tuning’s average monthly payroll was $2,081,386 and that the company had 412

employees. Samuel Morgan Yates signed the Lender 1 PPP Application. Samuel

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Morgan Yates also certified that the application and the information provided in all
supporting documents and forms was true and accurate.
a. In connection with Lender 1 PPP Application, defendant Samuel
Morgan Yates submitted what purported to be an Employer’s
Quarterly Federal Tax Return (“IRS Form 941”) for Lone Star Tuning
for the first quarter of 2020. On the purported IRS Form 941, Samuel
Morgan Yates falsely claimed that Lone Star Tuning had paid wages,
tips, and other compensation of $6,538,954.20 to 412 employees.
b. Defendant Samuel Morgan Yates also submitted with the Lender 1
PPP Application a false and misleading payroll journal that purported
to list payroll and tax payments for each of the business’s claimed 412
employees, the names of whom also appeared in a list of 500 random
names found in the source code of a program posted on a popular
online source code hosting and software collaboration platform.
G, In addition, defendant Samuel Morgan Yates submitted with the
Lender 1 PPP Application a false and misleading payroll report for
Lone Start Tuning that purported to show total payroll expenses of
$4,893,261.80 between January 1, 2020 and February 29, 2020.
16. In furtherance of the scheme, on or about May 5, 2020, defendant Samuel
Morgan Yates, electronically submitted a false and misleading PPP application to
Company | in the name of Lone Star Tuning seeking approximately $533,216 in PPP funds

(the “Lender 2 PPP Application”). The Lender 2 PPP Application falsely stated that Lone

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Star Tuning’s average monthly payroll was $722,788.44 and that the company had 145
employees. Defendant Samuel Morgan Yates signed the Lender 2 PPP Application.
Defendant Samuel Morgan Yates also certified that the application and the information
provided in all supporting documents and forms was true and accurate.
a. In connection with Lender 2 PPP Application, defendant Samuel
Morgan Yates submitted what purported to be an IRS Form 941 for
Lone Star Tuning for the first quarter of 2020. On the purported IRS
Form 941, Samuel Morgan Yates falsely claimed that Lone Star
Tuning had paid wages, tips, and other compensation of $2,555,438
to 145 employees.
b. Defendant Samuel Morgan Yates also submitted with the Lender 2
PPP Application a false and misleading list of employees that
included the many of the same names appearing in a list of 500
random names found in the source code of a program posted on a
popular online source code hosting and software collaboration
platform.
17. Defendant Samuel Morgan Yates’s scheme caused intended losses of at

least $5.7 million, based on the PPP loan applications submitted to Lenders 1 and 2.

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Counts One and Two

Violation: 18 U.S.C. § 1343
(Wire Fraud)

18. Paragraphs 1 through 17 of this Indictment are realleged and incorporated by
reference as though fully set forth herein.

19. Beginning in or around April 2020, and continuing until in or around May
2020, in Jefferson County, Texas, within the Eastern District of Texas, and elsewhere,
defendant Samuel Morgan Yates, on or about the dates specified below, did knowingly,
willfully, and with the intent to defraud, having devised and intending to devise a scheme
and artifice to defraud, and to obtain money and property by means of materially false and
fraudulent pretenses, representations, and promises, knowing such pretenses,
representations, and promises were false and fraudulent when made, transmit and cause to
be transmitted, by means of wire communications in interstate commerce, writings, signals,
pictures, and sounds, for the purpose of executing such scheme and artifice.

Execution of the Scheme and Artifice to Defraud

20. On or about the date specified below, defendant Samuel Morgan Yates, in
the Eastern District of Texas and elsewhere, for the purpose of executing the aforesaid
scheme and artifice to defraud, and attempting to do so, did knowingly transmit and cause
to be transmitted, by means of wire, radio, and television communication, writings, signals,
pictures, and sounds in interstate and foreign commerce for the purposes of executing such

scheme and artifice, as set forth below:

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Count | Approximate Date Description of Interstate Wire

The PPP loan application on behalf of Lonestar Tuning
electronically submitted from Texas, and routed

. eapell £4, 2020 interstate through Company 1’s servers outside of
Texas.
Wire transfer from Lender 2 in the amount of $533,216
2 May 15, 2020 to an account controlled by Samuel Morgan Yates at

Credit Union 1.

All in violation of 18 U.S.C. § 1343.

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NOTICE OF INTENT TO SEEK CRIMINAL FORFEITURE

18 U.S.C. §§ 981(a)(1), 982(a)(2), and 28 U.S.C. § 2461

As a result of committing the offenses as alleged in this Indictment, defendant shall

forfeit to the United States pursuant to 18 U.S.C. §§ 981(a)(1) and 982(a)(2) and 28 U.S.C.

§ 2461 any and all property, real or personal, involved in or traceable to property involved

in the offense, including proceeds obtained directly or indirectly from the offense, and the

following:

Personal Property

$504,715.40 in United States currency seized from Account No. xx6734 at Red
River Employees Federal Credit Union.

Cash Proceeds

A sum of money equal to $28,500.60 in United States currency, and all interest and
proceeds traceable thereto, representing the amount of cash proceeds obtained by
defendant as a result of the offense alleged in this Indictment, for which the
defendant is personally liable.

Substitute Assets

If any property subject to forfeiture, as a result of any act or omission by defendant:

(a)
(b)
(c)
(d)
(e)

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 subdivided
without difficulty,

it is the intent of the United States, pursuant to 21 U.S.C. § 853(p), to seek forfeiture of any

other property of defendant up to the value of the above forfeitable property, including but

not limited to all property, both real and personal, owned by defendant.

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By virtue of the commission of the felony offenses charged in this Indictment, any

and all interest defendant has in the above-described property is vested in the United States

and hereby forfeited to the United States pursuant to 18 U.S.C. § 981(a)(1) and 982(a)(2)

and 28 U.S.C. § 2461.

STEPHEN J. COX
UNITED STATES ATTORNEY

L. FRANK COAN, JR.
Criminal Chief

JONATHAN. HORNOK
Assistant United States Attorney

Indictment and Notice of Penalty — Page 10 of 11

A TRUE BILL

GRAND JURY FOREPERSON

DANIEL S. KAHN

ACTING CHIEF

FRAUD SECTION
CRIMINAL DIVISION
DEPARTMENT OF JUSTICE

L. RUSH ATKINSON
Assistant Chief

LOUIS MANZO
Trial Attorney

Date
Case 5:21-cr-00003-RWS-CMC Document 20 Filed 01/14/21 Page 11o0f11PagelD#: 74

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION

UNITED STATES OF AMERICA

§

§
V. § No. 5:21-CR-___

§ JUDGE SCHROEDER
SAMUEL MORGAN YATES §

NOTICE OF PENALTY

Counts One and Two

VIOLATION: 18 U.S.C. § 1343 (Wire Fraud)
PENALTY: Imprisonment for not more than twenty years; a fine

not to exceed $250,000; a term of supervised release of
not more than three years.

SPECIAL ASSESSMENT: $100.00

Indictment and Notice of Penalty — Page 11 of 11


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