Opinion and Order — No. 5:22-cr-00100 (Dkt. 27, E.D. Ky.)

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An Opinion and Order, Doc. 27 filed December 13, 2022 in the Eastern District of Kentucky, Central Division, Lexington (Case 5:22-cr-00100-KKC-MAS, Criminal Action No. 5:22-100-KKC), United States v. Kelly Harris and Neal Harris. The indictment charges twelve counts of wire fraud under 18 U.S.C. § 1343 over Economic Injury Disaster Loan (EIDL) applications submitted between about May 5, 2020 and July 25, 2020, which allegedly misstated the businesses' start dates, employees and gross receipts. The defendants jointly moved to dismiss the indictment for failure to state a claim under Rule 12(b)(3)(B)(v). The court denies the motion, holding that an intent to repay the loans is irrelevant to proving wire fraud and that reliance is not an element of the offense.

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Case: 5:22-cr-00100-KKC-MAS Doc #: 27 Filed: 12/13/22 Page: 1 of 9 - Page ID#: 169




                          UNITED STATES DISTRICT COURT
                          EASTERN DISTRICT OF KENTUCKY
                                CENTRAL DIVISION
                                   LEXINGTON

 UNITED STATES OF AMERICA,                         CRIMINAL ACTION NO. 5:22-100-KKC
       Plaintiff,


                                                         OPINION AND ORDER
 v.

 KELLY HARRIS and NEAL HARRIS,
       Defendants.



                                           *** *** ***

        This matter is before the Court on Defendants’ joint motion to dismiss the indictment

 against them for failure to state a claim pursuant to Federal Rule of Criminal Procedure

 12(b)(3)(B)(v). (DE 23; DE 24.) For the following reasons, the Court denies the motion.

 I.     Background

        To provide economic relief during the COVID-19 pandemic, the United States Small

 Business Administration’s (the “SBA”) Economic Injury Disaster Loan (“EIDL”) program

 extended loans to small businesses for expenses that those businesses could not pay due to

 the pandemic. (DE 2 ¶ 3.) To apply for these loans, small business owners submitted

 applications via an online portal. (Id.) Applicants certified that the information contained

 in the applications was accurate. (Id.)

        The indictment charges Defendants Kelly Harris and Neal Harris with twelve counts

 of wire fraud related to the EIDL program under 18 U.S.C. § 1343. (Id. ¶¶ 5-9.) The

 indictment alleges that Defendants “devised and intended to devise a scheme to defraud the

 United States, various financial institutions, and individuals, and to obtain money and

 property by means of materially false and fraudulent pretenses, representations and


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 promises.” (Id. ¶ 6.) The indictment also states that Defendants “for the purpose of executing

 the scheme[,] and attempting to do so, caused to be transmitted by means of wire

 communication in interstate commerce . . . signals and sounds.” (Id. ¶ 9.) According to the

 indictment, the scheme occurred from approximately May 5, 2020, through approximately

 July 25, 2020. (Id. ¶ 6) As set forth in the indictment, the purported scheme involved

 Defendants making false statements about their businesses in their applications for EIDL

 loans in order to receive loan proceeds. (Id. ¶¶ 7-8.) Such allegedly false statements included

 “when the businesses originated, the nature of the businesses, the number of employees of

 the businesses, and the gross revenues of the businesses prior to January 31, 2020.” (Id. ¶

 8.) The twelve counts encompass each of the falsified applications and each subsequent wire

 transfer of loan proceeds. (Id. ¶ 9.)

        The indictment details the false statements provided in each application, which

 include:

       Ruby E. Bailey Family Service Center had gross receipts of $378,000, lost rents of

        $15,000, and had ten employees;

       Turtle Doves was established in January 2019, had gross receipts of $247,926, lost

        rents of $12,000, and had five employees;

       North Side Market was established in January 2019, had gross receipts of $288,558,

        lost rents of $12,000, and had five employees;

       Grace Christian Fellowship Church was established in January 2017, had gross

        receipts of $198,459, lost rents of $10,000, and had three employees;

       Ruby E. Bailey Family Service Center had gross receipts of $378,000, lost rents of

        $20,000, had three employees, and was in the agriculture business; and




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          American Workhorse LLC was established in December 2017, had gross receipts of

           $288,558, lost rents of $20,000, had five employees, and was in the agriculture

           business.

 (Id. ¶ 9.)

           Defendants move to dismiss the indictment for failure to state the offense of wire

 fraud. (See Joint Mot. to Dismiss.) They argue that even if the facts alleged in the indictment

 are true, those facts are insufficient to result in a conviction. (Id. at 4.) Defendants contend

 that the Government will be unable to prove Defendants “devised a scheme or artifice to

 defraud” or “had the intent to deprive a victim of money or property.” (Id.)

 II.       Analysis

 A.    The majority of Defendants’ disputes are questions of fact inappropriate for
 resolution at this stage.

           Under Federal Rule of Criminal Procedure 12(b)(3)(B)(v), a defendant may move to

 dismiss an indictment if the indictment fails to sufficiently state an offense. Fed. R. Crim. P.

 12(b)(3)(B)(v). Courts construe an indictment liberally in favor of the indictment. United

 States v. Huff, 630 F. App’x 471, 489 (6th Cir. 2015). An indictment is sufficient if it (1)

 “‘contains the elements of the offense charged and fairly informs a defendant of the charge

 against which he must defend,’” and (2) “enables [the defendant] to plead an acquittal or

 conviction in bar of future prosecutions for the same offense.” Id. (quoting Hamling v. United

 States, 418 U.S. 87, 117 (1974)). An indictment fulfills the first requirement if it “states the

 offense using the words of the statute itself, as long as the statute fully and unambiguously

 states all the elements of the offense.” Id. (citation and quotation marks omitted). But “the

 recitation of statutory language must be accompanied with such a statement of the facts and

 circumstances as will inform the accused of the specific offense, coming under the general

 description, with which he is charged.” Id. (citation and quotation marks omitted).


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        However, in bringing a motion to dismiss an indictment, “[a] defendant may not

 challenge an indictment on the ground that it is not supported by sufficient evidence.” United

 States v. Levin, 973 F.2d 463, 468 n.2 (6th Cir. 1992) (citation and quotation marks omitted).

 “At this stage, the Court’s review of [an indictment] is limited to legal questions.” United

 States v. McDaniels, Criminal Action No. 5:20-103-DCR, 2021 WL 1343506, at *1 (E.D. Ky.

 Apr. 9, 2021). Therefore, a court should deny a motion to dismiss if it raises a factual

 challenge that “requires a pretrial test of the government’s evidence.” United States v. Hann,

 574 F. Supp. 2d 827, 830 (M.D. Tenn. 2008) (citation and quotation marks omitted). “[T]he

 prosecution’s evidence is tested at trial, not in a preliminary proceeding.” United States v.

 Short, 671 F.2d 178, 183 (6th Cir. 1982).

        Here, the indictment sufficiently states the wire fraud offense because it tracks the

 elements of the wire fraud statute nearly verbatim. 18 U.S.C. § 1343, the wire fraud statute,

 provides that “[w]hoever, having devised or intending to devise any scheme . . . to defraud, or

 for obtaining money or property by means of false or fraudulent pretenses, representations,

 or promises . . . causes to be transmitted by means of wire . . . communication in interstate .

 . . commerce, any . . . signals . . . or sounds for the purpose of executing such scheme” commits

 wire fraud. 18 U.S.C. § 1343. In directly referencing the statutory language, the indictment

 alleges that Defendants “devised and intended to devise a scheme to defraud the

 United States, various financial institutions, and individuals, and to obtain money and

 property by means of materially false and fraudulent pretenses, representations

 and promises.” (DE 2 ¶ 6 (emphasis added).) The indictment also states that Defendants

 “for the purpose of executing the scheme[,] and attempting to do so, caused to be

 transmitted by means of wire communication in interstate commerce . . . signals

 and sounds.” (Id. ¶ 9 (emphasis added).)



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        Further, the indictment ties the elements of wire fraud to detailed facts and

 circumstances to fairly inform Defendants of the wire fraud charges against them. As the

 indictment describes, the purported scheme involved Defendants providing false statements

 about their businesses in multiple online applications for EIDL loans in order to receive loan

 proceeds.   (DE 2 ¶¶ 7-8.)       According to the indictment, this scheme occurred from

 approximately May 5, 2020, to approximately July 25, 2020. (Id. ¶ 6.) The indictment

 summarizes the allegedly false statements as relating to “when the businesses originated,

 the nature of the businesses, the number of employees of the businesses, and the gross

 revenues of the businesses prior to January 31, 2020.” (Id. ¶ 8.) The Government lists each

 of the allegedly false statements1, the applications in which those statements were contained,

 and the exact wire transfers associated with the loan proceeds that Defendants received as a

 result of each falsified application. These details—including the dates when the scheme took

 place, the references to the false statements at issue, and the identification of the applications

 where those false statements are found—are enough to enable Defendants to plead an

 acquittal or conviction to bar future prosecutions for the same offense. The indictment’s

 citation to the wire fraud statute in combination with the statutory language and specific

 allegations of wire fraud are sufficient to withstand Defendants’ motion to dismiss. Huff, 630

 F. at 489 (finding indictment was sufficient where it “track[ed] verbatim the language of the



 1 These statements include (1) claims that Ruby E. Bailey Family Service Center had gross

 receipts of $378,000, lost rents of $15,000, and had ten employees; (2) claims that Turtle
 Doves was established in January 2019, had gross receipts of $247,926, lost rents of $12,000,
 and had five employees; (3) claims that North Side Market was established in January 2019,
 had gross receipts of $288,558, lost rents of $12,000, and had five employees; (4) claims that
 Grace Christian Fellowship Church was established in January 2017, had gross receipts of
 $198,459, lost rents of $10,000, and had three employees; (5) claims that Ruby E. Bailey
 Family Service Center had gross receipts of $378,000, lost rents of $20,000, had three
 employees, and was in the agriculture business; and (6) claims that American Workhorse
 LLC was established in December 2017, had gross receipts of $288,558, lost rents of $20,000,
 had five employees, and was in the agriculture business. (DE 2 ¶ 9.)

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 [statute]” and “identifie[d] with precision the date and location of [the defendant’s] offense as

 well as the specific statute his conduct violated”).

        The vast majority of Defendants’ objections to the indictment implicate questions of

 fact rather than questions of law.       Throughout their motion, Defendants counter the

 Government’s facts in its indictment with their own version of facts. (See generally Joint

 Mot. to Dismiss.) While courts may determine “preliminary findings of fact necessary to

 decide questions of law presented by pretrial motions,” these findings cannot “invade the

 province of the ultimate factfinder.” United States v. Craft, 105 F.3d 1123, 1126 (6th Cir.

 1997). Repeatedly, Defendants ask the Court to do just that—make factual findings that

 ultimately belong to the factfinder.

        The main thrust of Defendants’ arguments involve factual challenges to the

 Government’s allegations regarding the creation of Defendants’ businesses. According to

 Defendants, the Government’s theory is that Defendants represented that their businesses

 existed before January 31, 2020, when their businesses were not formed until after that date.

 (Joint Mot. to Dismiss at 9.)     Defendants frame this as a big misunderstanding: their

 businesses existed before January 31, 2020, but Defendants just failed to register the entities

 and adhere to other corporate formalities until the SBA notified them to the contrary. (Id.

 at 9-10.) Defendants attach exhibits that they claim show when their businesses were

 created. (Id. at 8.) Defendants argue that this “proves” that they were unaware that their

 businesses were unregistered, and therefore, they lacked the requisite intent. (Id. at 10.)

 Accordingly, Defendants request that this Court make a finding of fact with respect to when

 the businesses existed to decide whether the Government’s indictment fails to state an

 offense. (DE 26 at 3.)

        The Court declines to do so. See Levin, 973 F.2d at 467 (stating that “district courts

 may make preliminary findings of fact necessary to decide questions of law presented by

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 pretrial motions”) (emphasis added). At bottom, Defendants ask the Court to test their

 evidence against the Government’s. Resolution of such competing evidence is inappropriate

 at this stage. See Short, 671 F.2d at 183.

        Defendants remaining factual objections to the indictment similarly dispute

 Defendants’ intent or otherwise claim that the Government has insufficient evidence to prove

 intent. Defendants raise the following factual disputes: (1) Defendants publicized that they

 sought assistance, and “[a] person attempting to perpetrate fraud does not advertise that

 they are committing fraud;” (2) Defendants were eligible to receive the EIDL loans because

 their applications “prove[] that they were who they said they were and owned businesses they

 claimed to own;” and (3) in applying for the loans, Defendants held “honest good-faith

 belief[s]” since they did nothing to conceal or disguise their identities. (Joint Mot. to Dismiss

 at 13-15.) Ultimately, these factual disputes require the Court to sift through competing

 evidence and therefore, are best reserved for determination by the factfinder at trial.

 Defendants also argue that the indictment does not include any facts related to intent. (Joint

 Mot. to Dismiss at 13.) But Defendants cannot move to dismiss the indictment “on the ground

 that it is not supported by sufficient evidence.” Levin, 973 F.2d at 468 n.2. Moreover, the

 indictment must only include “a statement of the facts and circumstances as will inform the

 accused of the specific offense” with which they are charged. Huff, 630 F. App’x at 489. As

 the Court found supra, the indictment does so.

        As it relates to factual challenges to the indictment, Defendants’ motion therefore

 fails, and the Court denies their motion on that basis.

 B.     Defendants’ other legal theories fail as a matter of law.

        In the remainder of their motion, Defendants advance additional legal theories to

 support their argument. No theory succeeds.



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        First, Defendants argue that false statements2 are insufficient to state a “scheme to

 defraud” as required for wire fraud. (Joint Mot. to Dismiss at 16.) “A scheme to defraud

 includes any plan or course of action by which someone intends to deprive another by

 deception of money.” United States v. Daniel, 329 F.3d 480, 485 (6th Cir. 2003) (citation and

 quotation marks omitted). “Several common acts in support of a common fraudulent design

 may create a scheme to defraud.” United States v. Andrews, 803 F.3d 823, 826 (6th Cir. 2015).

 Therefore, as long as the false statements were part of an overall plan to fraudulently deprive

 the victims of money, the indictment will sufficiently state a scheme to defraud. Accordingly,

 the indictment sufficiently states this element. The Government alleges that in committing

 wire fraud, Defendants executed a plan to fraudulently deprive the United States, various

 financial institutions, and individuals of money by making false statements about their

 businesses in their applications for EIDL loans in order to receive loan proceeds. (DE 2 ¶¶

 7-8.) In carrying out that plan, Defendants performed several common acts—Defendants

 purportedly made multiple false statements in each of their six loan applications and

 subsequently submitted those falsified applications. (Id. ¶ 9.) For purposes of a motion to

 dismiss, these allegations are enough to establish a scheme to defraud.

        Next, Defendants contend that since the charges involve loans that Defendants would

 have to repay, no victim exists. According to Defendants, this means that the Government

 cannot prove that Defendants intended to deprive a victim of money. (Joint Mot. to Dismiss

 at 14.) As an initial matter, “the identity of the victim of a fraudulent scheme is not an




 2
  Defendants additionally claim that the fact of “[w]hen Defendants businesses originated” is
 the only fact “that could remotely be susceptible to demonstrate a scheme to defraud or an
 intent to deprive.” (DE 26 at 3.) However, this argument ignores that the indictment also
 cites to other false statements that could form the basis of such a scheme, including the
 organizations’ amount of gross receipts, value of lost rents, number of employees, and lines
 of business. (See DE 2 ¶ 9.)

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 essential element that the government is required to prove.” United States v. McAuliffe, 490

 F.3d 526, 533 (6th Cir. 2007). So, even if the Government did not identify a victim in its

 indictment (it does), that would not prove fatal to the indictment. Moreover, the Government

 only needs “to establish that [Defendants] intended to deprive [the victim] of money in the

 short-term.” Daniel, 329 F.3d at 488 (emphasis added). The Government does not need to

 show that the victim “was actually deprived of money.” United States v. Ames Sintering Co.,

 927 F.2d 232, 235 (6th Cir. 1990) (emphasis added). Therefore, a defendant’s intention to

 repay loan money is irrelevant for purposes of proving wire fraud. See United States v.

 Harris, 658 F. App’x 228, 232 (6th Cir. 2016); United States v. Diyali, CRIMINAL NO. 5:22-

 CR-45-KKC-EBA-1, 2022 WL 16707971, at *2 (E.D. Ky. Nov. 4, 2022). To the extent that

 Defendants’ motion argues that potential repayment of the loans negates intent as a matter

 of law, the Court cannot grant the motion.

        Finally, Defendants raise arguments regarding the extent of the SBA’s reliance on

 Defendants’ representations. (Joint Mot. to Dismiss at 12.) However, reliance is not an

 element of wire fraud.    United States v. Merklinger, 16 F.3d 670, 678 (6th Cir. 1994).

 Therefore, that argument also fails.

        Because Defendants’ legal challenges to the indictment are also unsuccessful, the

 Court denies the motion to dismiss in its entirety.

 III.   Conclusion

        Accordingly, the Court hereby ORDERS that Defendants’ joint motion to dismiss the

 indictment (DE 23; DE 24) is DENIED.

        This 13th day of December, 2022.




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