Pewaukee man jailed for carrying out COVID PPP money fraud scheme
The mastermind of a fraud scheme that diverted COVID relief money intended for struggling businesses into shadow businesses was sentenced to nearly five years in prison on Wednesday and ordered to pay back nearly $ 1 million.
Thomas Smith, 47, of Pewaukee, implicated seven other people, including his brother, in a scheme to get more than $ 1.2 million in paycheck protection program funds last year for businesses that were not in operation.
“I guess I was just greedy,” Smith told his attorney, Michael Steinle, according to Steinle’s remarks at sentencing.
It was honest, Steinle said, because there was no other explanation why someone like Smith would. Smith was not desperate or faced with addiction issues. He is a father of five, married for 23 years, who has started two successful businesses. He is considered a mentor and a “go-to man” in his longtime church.
U.S. District Judge Brett Ludwig told Smith he hoped his 57-month prison sentence and two years of supervision would get him back on track as an active member of society.
Ludwig also ordered Smith to pay a restitution of $ 960,000, the total amount of PPP money that was obtained by all participants. Ludwig allowed Smith to report to federal prison at a later date.
Steinle said the actual loss was instead $ 200,000, as most of the proceeds from the loan and Smith’s bribes were frozen before they were spent. Steinle suggested that a year to 18 months was sufficient jail time for Smith.
As part of the plea deal, prosecutors recommended a sentence of between 57 and 71 months, and Ludwig opted for the shorter sentence.
“You have taken advantage of our nation’s bounty,” said Ludwig, and you have undermined public confidence in the government.
All PPP demands, their products and their bribes to Smith have passed through his bank, which became suspicious last summer and froze several accounts. Federal prosecutors declined to name the bank, which is headquartered in Green Bay.
PPP loans were forgivable if used for payroll, rent, utilities, and other specified expenses to keep small businesses afloat during pandemic restrictions last year.
“The federal government should be able to provide emergency funds like P3 loans to the deserving public without having to feel pressured by potential fraudsters looking to take advantage of the national disaster,” wrote federal prosecutors responsible for fraud in a conviction memo.
“It is important to impose a heavy sentence on someone who did not just misrepresent themselves in a loan program following a national disaster, but who acted brazenly, by getting loan afterwards. loan and recruiting others in his fraud scheme. “
The eight defendants were charged last year and have pleaded guilty to either bank fraud or misrepresentation. The other defendants must be sentenced in the days and weeks to come.
Smith is the first person convicted of PPP fraud to be sentenced in Wisconsin, and among the first in the country.
According to his case records, Smith first secured PPP money in early April 2020 for his two businesses, a retirement home and a towing service, which employed 39 people.
His brother, Stephen Smith, asked for help with his business, CFA Auto Transport. But CFA didn’t have a business or actual employees, so the Smiths falsified payroll and tax records to apply.
And they got the money just as easily. It was at this point that prosecutors said Thomas Smith began contacting friends, family and acquaintances with existing LLCs to seek more PPP money.
Smith said on Wednesday that the other people came to see him once it was learned he was familiar with the P3 program. “I didn’t make them do something they didn’t want,” he said.
“The defendant filled out the loan applications and created the false documents to back them up; he only required the plaintiff he recruited to sign his name,” according to prosecutors.
“The fact that his own businesses had already been run at the time makes it clear that this was not the money he needed – this offense was motivated solely by greed,” they wrote.
Smith would take huge chunks of the product as compensation, from $ 30,000 to $ 115,000. But all the payments made to him aroused the suspicion of his bank; the same handled all PPP requests. Then Smith worked with the others to concoct stories and paperwork to make the payments appear to be rent, for equipment sales, or for investments in other businesses.
More related cases
Stephen Smith, 42, of Milwaukee, and Robert Hamilton, 59, of Milwaukee, a registered agent for Glory Transportation, and two Chicago men, Samuel Davis and Jonathan Henley, were charged with Smith in October.
Three other men who let Smith use their name or business to apply for PPP loans have been charged separately – Marvin Fitzgerald, Tarone Woods and Deon Petty.
According to court records, Stephen Smith asked Fitzgerald, 30, to become the registered agent for Smith’s defunct company, New Beginnings Family Services, which was later reinstated. Fitzgerald opened a bank account for New Beginnings and Stephen Smith prepared the PPP loan application that Fitzgerald must sign.
Stephen Smith also asked Fitzgerald if he knew any other people with LLCs or limited liability companies. Fitzgerald referred his roommate, Deon Petty, who owned Rebels Paris, a clothing company with no employees.
After Smith submitted a successful PPP request for Rebels Paris, Petty gave Fitzgerald $ 20,000. He got an additional $ 10,000 through an economic disaster loan set up in his name after Petty shared Fitzgerald’s personal information with someone else who used it to apply. Fitzgerald did not see the loan application and did not submit it.
But when investigators asked questions, Fitzgerald lied, claiming he had withdrawn from the New Beginnings case, had not opened his bank account and said someone other than Smith did. had approached.
“It is clear that the defendant was looking for easy money in the pandemic, and he did not ask the right – or indeed any – questions about where this money was coming from and why it was entitled.”
Prosecutors recommend probation for Fitzgerald, who faces conviction Thursday, and a restitution of $ 20,000.
Davis, 40, told investigators he trusted Thomas Smith because Stephen Smith had been Davis’ roommate in college. After the Youth Sports League and Davis Mentorship Group secured $ 177,000 in P3 funds, he gave Thomas Smith $ 75,000 and referred a friend, Jonathan Henley.
A request for $ 212,500 for Henley’s company, Premier Logistic Solutions, was not accepted, nor a request for $ 230,000 on behalf of New Beginnings Family Services, the former company of Stephen Smith with Fitzgerald as the new nominal owner.
Prosecutors recommend two years of surveillance and a restitution of $ 102,500 for Davis upon his conviction Friday.
According to prosecutors, only a few cases of PPP fraud have resulted in convictions across the country, involving greater losses and long sentences. A 29-year-old Florida man sadly spent some of the $ 3.9 million he scammed on a $ 318,000 Lamborghini sports car. He was sentenced to 6.5 years in prison.
A 41-year-old woman from Arkansas has been sentenced to 41 months in prison for a $ 1.9 million PPP fraud.