United States’ Sentencing Memorandum and Motion for an Upward Variance — No. 3:22-cr-00035 (Dkt. 53, E.D. Va.)

Summary

United States' Sentencing Memorandum and Motion for an Upward Variance, Document 53 in Criminal No. 3:22-cr-35 in the Eastern District of Virginia, Richmond Division, filed 05/16/23. The government describes a greater than $1.1 million fraud across multiple pandemic relief programs, including $1,143,224 in Paycheck Protection Program fraud, unemployment insurance fraud and a $10,000 Economic Injury Disaster Loan, with proceeds spent at casinos, followed by the defendant's repeated failures to appear while on bond and his arrest in a separate check fraud matter in Alabama. After a five-count indictment of April 5, 2022, a competency finding on July 18, 2022 and a guilty plea to one wire fraud count on January 11, 2023, the PSR sets a range of 51-63 months at offense level 24 and criminal history category I; the government seeks an upward variance to 78 months.

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“United States’ Sentencing Memorandum and Motion for an Upward Variance — No. 3:22-cr-00035 (Dkt. 53, E.D. Va.).” Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/united-states-sentencing-memorandum-and-motion-for-an-upward-variance-d2d96b55ab/, SHA-256 f863b8207d82268da9966754ed1f5af4b27d9a44a97fd24b9bf121eb3c616a6f.

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Case 3:22-cr-00035-DJN Document 53 Filed 05/16/23 Page 1 of 11 PageID# 201

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Richmond Division

UNITED STATES OF AMERICA )
)
v. ) Criminal No. 3:22-cr-35
)
KORTNEY THOMAS KELLEY, )
)
Defendant. )

UNITED STATES’ SENTENCING MEMORANDUM AND MOTION FOR AN
UPWARD VARIANCE

While many Americans reeled from financial hardship and suffering during the COVID-19

pandemic, the defendant, Kortney Thomas Kelley, exploited the unique national moment to

perpetrate a greater than $1.1 million fraud involving multiple pandemic relief programs. ECF

No. 48 (Statement of Facts, or “SOF”) ¶¶ 16 ($1,143,224 Paycheck Protection Program fraud), 21

(unemployment insurance fraud), 22 ($10,000 Economic Injury disaster Loan fraud). While many

applicants to these governmental programs were unable to receive needed funding as COVID-19

relief funding ran out, Kelley was squandering his ill-gotten gains at casinos around the country.

Id. ¶ 18. Then, after being released on bond by this Court, Kelley abused the Court’s trust by

failing to appear in Court on multiple occasions – all while lying to the Court to explain his non-

appearance. See, e.g., ECF No. 50 (Pre-Sentence Report, or “PSR”) ¶ 7. It is only after he was

arrested in connection with a separate check fraud scheme – which he is alleged to have perpetrated

in Vestavia Hills, Alabama while on bond in this matter– that Kelley was found and returned to

this Court for further proceedings. PSR ¶ 10.

As explained below, application of the § 3553(a) factors—in particular, the seriousness of

Kelley’s offenses, the need to deter Kelley and similar defendants, and the need to provide just

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punishment—support an upward variance from the properly calculated Guidelines Range of 51-

63 months to 78 months’ imprisonment.

I. Background and Pre-Sentence Report Guidelines Range Calculation

On April 5, 2022, the government filed a five-count Indictment charging Kelley with: (1)

Wire Fraud, in violation of 18 U.S.C. § 1343 (Counts 1-3); and (2) Engaging in Monetary

Transactions in Criminally Derived Property, in violation of 18 U.S.C. §§ 1957 (Counts 4-5). ECF

No. 1.

On May 31, 2022, the government moved this Court to appoint an independent

psychiatric examiner to perform a competency examination of the defendant, Kortney Thomas

Kelley, after the defense previewed concerns about the defendant’s competency. ECF No. 19.

On June 2, 2022, the Court vacated trial deadlines, set a competency hearing for the defendant on

September 6, 2022, and appointed psychiatric examiner Dr. Evan Nelson to perform a

competency examination of the defendant. ECF No. 22. Dr. Nelson completed his psychiatric

examination of the defendant on July 18, 2022, finding the defendant competent. After the

defendant failed to appear for Court proceedings on multiple occasions (as detailed further

below), the Court revoked the defendant’s bond and issued a warrant for the defendant’s arrest.

ECF Nos. 32, 33. The arrest warrant return was executed on September 22, 2022. ECF No. 35.

Thereafter on January 11, 2023, the defendant pled guilty to Count 3 (Wire Fraud) of the

Indictment, carrying a maximum penalty of 20 years’ imprisonment and 3 years’ supervised

release. ECF Nos. 46-48. The PSR calculates Kelley’s applicable Guidelines Range as 51-63

months’ imprisonment, based on a Criminal History Category of I and a Total Offense Level of

24. PSR ¶ 79. The United States has no objections or corrections to the PSR. The PSR properly

applies the following enhancements and reductions, none of which are contested:

• Base offense level of 7, pursuant to § 2B1.1(a)(1). PSR ¶ 25.

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• 14 level enhancement for loss amount greater than $550,000 but less than

$1,550,000, pursuant to § 2B1.1(b)(1)(H). PSR ¶ 26.

• 2 offense level enhancement for an offense involving conduct described in 18

U.S.C. § 1040, pursuant to U.S.S.G. § 2B1.1(b)(12): Specifically, Kelley’s fraud

offense involved the theft of Federal Emergency Management Agency-funded

lost wage assistance (“LWA”) benefits, which were disbursed and paid in

connection with the with a major disaster declaration for COVID-19 pursuant to

Section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance

Act. PSR ¶¶ 15-17, 27.

• 2 offense level enhancement because the defendant derived more than $1,000,000

in gross receipts from a financial institution, pursuant to U.S.S.G. § 2B1.1(b)(12).

PSR ¶ 28.

• 2 offense level enhancement for obstruction because the defendant “willfully

obstructed or impeded, or attempted to obstruct or impede, the administration of

justice by not appearing for multiple hearings as ordered by the Court,” PSR ¶ 22,

pursuant to U.S.S.G. § 3C1.1.

• 3 offense level reduction for acceptance of responsibility under U.S.S.G. § 3E1.1.

II. Sentencing Position

Following the Supreme Court’s decision in United States v. Booker, 543 U.S. 220 (2005),

the Sentencing guidelines are “effectively advisory.” Id. at 245. Nonetheless, the advisory nature

of the Guidelines “does not mean that they are irrelevant to the imposition of a sentence.” United

States v. Moreland, 437 F.3d 424, 432 (4th Cir. 2006); see also United States v. Green, 436 F.3d

449, 455 (4th Cir. 2006). Indeed, the Guidelines “seek to embody the Section 3553(a)

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considerations, both in principle and in practice.” Rita v. United States, 551 U.S. 338, 350 (2007).

Thus, a sentencing court “must consult [the] Guidelines and take them into account when

sentencing” to “provide certainty and fairness in meeting the purposes of sentencing, [while]

avoiding unwarranted sentencing disparities.” Booker, 543 U.S. at 264 (internal quotation

omitted); United States v. Biheiri, 356 F. Supp. 2d 589, 593 (E.D. Va. 2005).

A sentencing court should first calculate the range prescribed by the sentencing guidelines

after making the appropriate findings of fact. See United States v. Hughes, 401 F.3d 540, 546 (4th

Cir. 2005). Following that calculation, a sentencing court must then “consider that range as well

as other relevant factors set forth in the guidelines and those factors set forth in [18 U.S.C.]

§ 3553(a) before imposing the sentence.” Id.

The 3553(a) factors discussed below support a sentence within the Guideline Range.

A. Nature, Circumstances, and Seriousness of the Offenses

At the onset of the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief,

and Economic Security (“CARES”) Act to provide emergency financial assistance to millions of

Americans suffering from the economic effects and dislocation from the pandemic. The law

created several specific relief programs of relevance to this case. First, Congress appropriated

billions of dollars for small business job retention, provided as forgivable loans to cover payroll

costs and other covered expenses through a program referred to as the Paycheck Protection

Program (“PPP”). SOF ¶ 7. Second, Congress provided funds to pay benefits for unemployed

workers who normally would not qualify for traditional unemployment insurance benefits. PSR

¶ 15. Third, Congress created the Economic Injury Disaster Loan (“EIDL”) program to provide

working capital for small business to meet financial obligations.

It was against this backdrop that the defendant exploited the unique national moment to

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enrich himself at the expense of truly needy small business owners and unemployed workers.

Across 2020 and 2021, the defendant repeatedly made false certifications to obtain four PPP loans

on behalf of two defunct companies, neither of which had any legitimate business activity. SOF

¶¶ 1-3, 14. Rather than stating truthfully that his businesses had no employees, Kelley claimed

over a hundred employees and hundreds of thousands of dollars of monthly payroll. Id. ¶ 14(b).

Kelley also fabricated supporting documentation, including Internal Revenue Service tax returns

purporting to show legitimate business activity. Id. ¶ 14(a). As a result, Kelley received

$1,143,224 over four separate PPP loans. Though Kelley certified that the loan proceeds would

be used exclusively for covered PPP business expenses, id. ¶ 14(c), he actually spent $142,711 at

various casinos and on gaming and transferred $834,077 to his personal brokerage accounts, id.

¶ 18. Then, Kelley again lied on four separate PPP loan forgiveness applications – certifying that

funds had been properly applied to covered PPP expenses – to obtain a complete discharge of his

loans. Id. ¶ 13.

Along the way, Kelley also lied to obtain $10,000 funds from the EIDL program. SOF

¶ 22. He further lied in statements to the Virginia Employment Commission to obtain pandemic-

related unemployment insurance funds to which he was not entitled, stating that he was laid off

from his job as a sales manager at Focused Resources, a company that Kelley owned and the same

company for which Kelley filed PPP loans. Id. ¶ 21.

The repetitive, continuous nature of the fraud makes clear that the criminal conduct was

not a product of a momentary lapse of judgment or a solitary aberration from otherwise law-

abiding behavior; instead, the defendant made the willful, deliberate choice to loot multiple

pandemic relief programs over and over again. By looting these programs, the defendant

repeatedly stole funds from those who needed it the most during the pandemic. In all, the nature

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and circumstances of the defendant’s offenses – defrauding government relief programs in a time

of unprecedented economic turmoil and distress – warrants a significant term of imprisonment. A

78-month recommendation is well supported by this sentencing factor.

B. History and Characteristics of the Defendant

Kelley’s background also supports a significant sentence. Unlike many defendants who

come before the Court, Kelley enjoyed many opportunities and advantages in life. The

defendant’s early childhood was relatively stable – free of domestic violence, substance abuse

issues, or other neglect. PSR ¶ 48. The defendant is in good physical health but suffers from

diabetes. Id. ¶¶ 58-60. Though the defendant has previously stated that he suffered from

depression and anxiety, he reports that he “no longer has depression and anxiety symptoms and

that he does not need the medications any longer.” Id. ¶ 62. There is no evidence of substance

abuse issues.

The PSR indicates an area that might be used to theoretically mitigate Kelley’s crime spree:

Following an injury to the defendant’s father, the family’s primary breadwinner, when the

defendant was in 9th grade, the family relied on disability assistance and support from the church

to get by. Id. ¶¶ 49-50. In response to this hardship, the defendant admirably began working to

support the family. Id. ¶ 51. The defendant eventually earned his GED, moved out of his parents’

house, and got married. Id. In another world, Kelley may have drawn empathy from his own

experiences with economic stress and uncertainty following the incapacitation of his father, the

family’s primary breadwinner. Instead, Kelley chose to raid programs that were meant to address

economic stress for other vulnerable Americans at a time of national disaster. Whatever the root

of Kelley’s troubles, those wounds do not excuse his grift and deceit.

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C. Adequate Deterrence to Criminal Conduct

The Court must weigh the need for the sentence imposed to afford adequate specific and

general deterrence. 18 U.S.C. § 3553(a)(2). In this respect, the Government submits that a 78-

month sentence is also justified.

1. The Court must send a strong message to individuals contemplating disaster
relief fraud.

General deterrence is perhaps even more important in financial fraud cases such as this

one, which are often difficult to detect, investigate, and prosecute. See e.g., United States v. Martin,

455 F.3d 1227, 1240 (11th Cir. 2006) (“Because economic and fraud-based crime are ‘more

rational, cool, and calculated than sudden crimes of passion or opportunity’ these crimes are ‘prime

candidates for general deterrence.’”). Moreover, general deterrence is particularly apt in cases

involving government program fraud, which is often rampant and pervasive. Due to its prevalence,

the government often lacks the ability to catch and prosecute all the fraud affecting a particular

government program. A substantial penalty will provide the appropriate disincentives to those

contemplating defrauding government relief programs. See, e.g., United States v. Morgan, 635 F.

App’x 423, 450 (10th Cir. 2015) (“General deterrence comes from a probability of conviction and

significant consequences. If either is eliminated or minimized, the deterrent effect is

proportionately minimized.”); United States v. Bergman, 416 F. Supp. 496, 499 (S.D.N.Y. 1976)

(stating that absent a meaningful term of imprisonment, general deterrence—“the effort to

discourage similar wrongdoing by others through a reminder that the law’s warnings are real and

that the grim consequence of imprisonment is likely to follow”—will not be achieved.).

This will not be the last time that the nation faces a moment of crisis – and when that

moment arises, there will be fraudsters who seek to take advantage of that crisis for selfish gain.

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Court must send the strongest possible message to those who would engage in similar conduct that

they will be caught and punished to the fullest extent of the law.

2. A strong sentence is necessary to specifically deter this defendant from lying
for selfish gain.

Even after his Indictment in this present matter, the defendant continued to lie for selfish

gain. While on bond in the Court, the Defendant lied repeatedly to avoid coming to Court as

ordered.

First, the defendant failed to appear in Court on September 6, 2022 and informed the

Court, via counsel, that he went to the federal courthouse in Birmingham, Alabama instead. See

ECF No. 28 at 2. Counsel informed the Court that Kelley “accidentally bought a plane ticket

that puts him in to Richmond at 9:58pm tonight as opposed to 9:58 a.m.” As a result, the Court

reset the next hearing for September 8, 2022 at 3:00 p.m. USMS bought a flight ticket for Kelley

to depart Birmingham, Alabama on September 8, 2022 and arrive in Richmond by 11:34 a.m. on

September 8, 2022, providing this flight itinerary to Kelley through counsel. PSR ¶ 6. USMS

further confirmed with the defendant’s attorney that the defendant received the ticket. Id. Yet,

the defendant again failed to appear in Court on September 8, 2022. Id. ¶ 7. To explain his non-

appearance, the defendant thereafter falsely claimed that his flight to Richmond was incorrectly

scheduled for September 8, 2022 evening. See id.; ECF No. 30.

Second, after Court again reset the next hearing for September 16, 2022 at 11:00 a.m., the

Court instructed defense counsel that the defendant “is to arrive on 9/15/2022 to make sure he is

ready at the scheduled time on 9/16/2022 or a warrant will be issued.” See ECF No. 30. The

Court ordered that the defendant “shall arrive in Richmond, Virginia not later than 3:00 p.m. on

September 15, 2022.” ECF No. 31. Thereafter, on September 12, 2022, USMS bought a flight

ticket for Kelley to depart Birmingham, Alabama on September 15, 2022 at 9:41 a.m. and arrive

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in Richmond by 2:29 pm on September 15, 2022. PSR ¶ 8. USMS provided this flight itinerary

to Kelley through counsel. Id. Deputy Marshal Stalnaker confirmed that Kelley would have

been given a boarding pass at the airport upon check in. Id. Yet, on September 15, 2022, Kelley

told his probation officer that “his boarding pass didn’t work, so he couldn’t board the plane for

VA.” PSR ¶ 12. In a November 10, 2022 letter to the Court, the defendant, claiming to be a

victim of identity theft, stated, “The thieves took over my iPhone for at least 30 days, cancelling

and altering my flight and hotel arrangements to my court date.” PSR ¶ 11. As the defendant

well knew, this far-fetched story was not true. In a separate Mirandized interview in the

Vestavia Hills Police Department on September 20, 2022, the defendant attributed his non-

appearance to a different cause –saying that “he had packed up his medicine and was waiting for

someone to come get him and that he knew he was wanted because the people in Virginia didn’t

understand how hard it is to fly through Atlanta.” PSR ¶ 10.

Kelley’s lies to avoid having to appear before this Court further substantiate a significant,

78-month sentence.

D. The Need to Provide Just Punishment and the Need to Protect the Public

During the height of the COVID-19 pandemic, the defendant repeatedly stole government

benefits intended for small businesses and workers. Though the government is the ostensible

victim for restitution purposes, the harm in this case cannot be measured solely by the pecuniary

losses. Rather, the Court should also consider the collateral harms on other victims caused by the

defendant’s conduct.

First, by causing fraudulent unemployment insurance applications to be submitted, Kelley

raised administrative costs for Virginia Employment Commission, occupying scarce bandwidth

needed to address and resolve legitimate applications by unemployed workers. These costs were

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not merely theoretical. Facing lengthy delays in the adjudication of unpaid claims, genuinely

unemployed workers were forced into class action litigation against the VEC in the District Court

for the Eastern District of Virginia to obtain unemployment benefits owed to them in a timely

manner. As the Court aptly observed in that lawsuit, “the unprecedented COVID-19 pandemic and

pandemic-related restrictions caused a significant increase in unemployment claims and

overwhelmed unemployment compensation programs nationwide, including in Virginia.” Cox et

al. v. Hess, Case No. 3:21-cv-253-HEH, ECF No. 25 at 1 (Order). Kelley’s sentence must reflect

the harm to unemployed workers who were left waiting for needed benefits while fraudsters

chewed up the VEC’s bandwidth.

Second, the funds that Kelley stole were limited. In fact, nearly four weeks before the

scheduled end of the PPP program, in early May 2021, the PPP program ran out of money.1 Every

dollar that Kelley stole was a dollar taken out of the hands of a truly needy American small business

to cover the payroll costs of truly deserving workers.

Third, while the government is the ostensible victim in this case, the defendant also

defrauded American taxpayers, whose earnings underlie the government programs in question.

In conclusion, the defendant’s crimes are serious and deserving of a 78-month term of

imprisonment. The defendant is unlikely to ever repay the government, and a lengthy sentence

may be the only measure of justice that those victimized by the defendant’s scheme will ever

receive.

1
Stacy Cowley, The Paycheck Protection Program is out of money, N.Y. Times, (May 4, 2021),
https://www.nytimes.com/2021/05/04/business/paycheck-protection-program-closes.html.

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III. Conclusion

The defendant exploited the COVID-19 pandemic through multiple overlapping fraud

schemes, enriching himself at the expense of truly needy small businesses and workers, who were

the intended beneficiaries of COVID-19-related governmental benefits. A 78-month sentence is

sufficient but not greater than necessary to account for the defendant’s misconduct.

Respectfully submitted,

JESSICA D. ABER
UNITED STATES ATTORNEY

By: /s/ .
Avi Panth
VA Bar No. 92450
Assistant United States Attorney
United States Attorney’s Office
919 East Main Street, Suite 1900
Richmond, Virginia 23219
Phone: (804) 819-5400
Fax: (804) 771-2316
Email: avishek.panth@usdoj.gov

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