As we have detailed in prior posts, the DOJ is stepping up efforts to investigate and charge individuals with Paycheck Protection program (“PPP”) fraud.  The New York Times reported in August of this year that “[t]here are currently 500 people working on pandemic-fraud cases across the offices of 21 inspectors general, plus investigators from the FBI, the Secret Service, the Postal Inspection Service, and the Internal Revenue Service.”  In this post, we discuss one important aspect of these cases: prosecutorial plea-bargaining practices that will ultimately influence the sentences imposed by courts on individuals convicted of PPP fraud.

 Background On The Federal Sentencing Guidelines

Congress created the United States Sentencing Commission and Sentencing Guidelines in 1984 to address what it viewed as a major problem: the disparities between sentences being imposed for similar crimes.  This goal has not been met for several reasons, including those we discuss in this post.  The guidelines consisted of a “base offense level,” which is a number assigned to common crimes.  “Specific offense characteristics,” such as the amount of money involved in a theft or the use of sophisticated means, then add or deduct points to this base. General characteristics like the defendant’s role in the offense or their acceptance of responsibility do the same.  Then a defendant receives a criminal history category based on past convictions. The final offense level and criminal history category are fed into a table which produces a “guidelines range” with a high and low number of months.  For a more in-depth explanation of the sentencing guidelines see our page on the topic.

The sentencing guidelines are not mandatory, and judges sentencing criminal defendants must consider a variety of other factors to determine a fair sentence.  Still, given the intangible and inherently difficult task of assigning a term of months or years of imprisonment not just for a crime, but for the individual who is sentenced, the effect of an advisory sentencing guideline is powerful: Its anchoring effect has been well-documented.  Even if the guidelines are not ultimately followed by a sentencing court, the advisory sentencing guideline that is put before the court will play a significant role.

Almost all federal criminal defendants resolve their cases through a plea agreement.  A plea agreement will set forth where the prosecution and the defendant agree on the sentencing guidelines.  The counts a defendant pleads to will determine the base offense level.  The plea may also set out the enhancements that will be added to the guidelines calculation.

Given the way the guidelines work, a variety of decisions at the plea agreement stage can play a powerful role in the ultimate advisory sentencing range.  Below, we discuss these decisions in the context of plea agreements in PPP cases.

 The Charging Statutes

The charging statute can play a very important role in the ultimate sentencing decision.  In the context of PPP fraud cases, we have seen charging decisions vary widely between charges that limit that maximum sentence to 5 years, regardless of loss, and charges that can carry up to 20 years.  The prosecution’s choice of charges also influences the sentencing guidelines.  The below cases illustrate this phenomenon:

Conspiracy under 18 USC § 371 – Capping Any Fraud at a Maximum of 5 Years

Whenever two or more people participate in a criminal enterprise, the government has the option of charging it as a conspiracy.

The sentencing guidelines for conspiracy offenses use the “base offense level” for the underlying crime. So, a fraud conspiracy would be calculated the same as a regular fraud—except there are two important differences:

First, no matter what the underlying crime is or what the sentencing guidelines say, a § 371 conspiracy offense carries a maximum penalty of 5 years (60 months).  Wire fraud, by contrast carries 20 years.  Assuming no criminal history, the sentencing table can exceed 60 months starting at an offense score of 24. Wire fraud has a base offense of 7 which means it hits this threshold with 17 additional points. Loss amount can add a lot of points. A loss amount greater than $3.5 million adds 18 points for a total of 25 and a guidelines range of 57 to 71 months. But the fraud conspiracy defendant is facing 57 to 60 months for the same offense. In extremis, a single defendant who obtained $550 million would get 30 additional points for a score of 37 and a range of 210 to 262 months (though this is capped at 240 months or twenty years because fraud too has a maximum penalty). But, if that defendant were charged with conspiracy, his maximum would still be 60 months. (The 30 possible points for loss amount offer the simplest comparison, but the specific offense characteristics in the fraud guideline offer over 50 additional points.)

Second, for offenses where the guidelines won’t be kneecapped by the 60-month maximum, the conspiracy guidelines include additional offense characteristics. Specifically, the guideline includes a reduction for not completing the conspiracy. So, an individual defendant who attempted to steal $3.5 million but then decided not to complete his fraud would still face a total score of 25 and a guidelines range of 57 to 71 months. If they were in a conspiracy, their total score would be 22, and they would only face 41 to 51 months.

In some PPP fraud cases, federal prosecutors have agreed to limit the maximum sentence to 5 years—although the sentencing guidelines would have recommended a sentence of higher than 5 years based on how much money was stolen.

A few examples include:

• United States v. Tarik Jaafar, and United States v. Monika Magdalena Jaworska (E.D. Va. Dec. 12, 2020): Husband and wife defendants filed 18 fraudulent PPP loans for a total of $6.6 million. They fraudulently obtained $1.4 million. Though initially charged with wire fraud, the husband pled to a single § 371 conspiracy count. He received 12 months imprisonment. The wife pled guilty to a single § 371 conspiracy count. The government requested, and the court awarded a sentence of time served.
• United States v. Charno (N.D. Ohio May 23, 2022): Defendant was responsible for over $18 million in intended loss by filing 40 false loan applications in a PPP fraud scheme involving an intended loss of $35.7 million where defendant was permitted to plead guilty to one § 371 conspiracy count and was sentenced to 24 months.
• United States v. Jericca Rosado (S.D. Fla. Dec. 7, 2021): Defendant was permitted to plead to a single § 371 count for participating in at least $1.3 million in fraudulent PPP loans as part of a wider $34 million PPP fraud conspiracy. The defendant received a 37-month sentence.
• United States v. Victoria Dieuy Ho (S.D.N.Y. July 20, 2022): In a PPP fraud conspiracy involving an intended loss of $13 million and actual loss of $7.8 million,[1] the defendant was permitted to plead guilty to one § 371 conspiracy count and was sentenced to 24 months.

By contrast, prosecutors in other cases have required defendants to plea to substantive wire fraud or bank fraud counts, which carry a maximum of 20 years.  See, for example, the following:

• United States v. Muge Ma, No. 1:20-cr-00407-RMB (S.D.N.Y. Apr. 21, 2022).
• United States v. Dinesh Sah, No. 3:20-cr-00484-S (N.D. Tex. Apr. 14, 2022).
• United States vs. Hunter Vanpelt, No. 1:21-CR-00006-MHC (N.D. Ga. Jan. 10, 2022).

Money Laundering under 18 U.S.C. § 1957 – Adding Extra Points To The Guidelines Score.

In other cases, federal prosecutors have required defendants to plead to substantive fraud charges plus money laundering charges.

Most people think of money laundering as deliberate and planned attempts to hide the illegal source of money. That is a type of money laundering and is punished severely. But the federal money laundering statutes also punish knowing use of criminally derived funds.  This can include what the government has termed “receipt and deposit” money laundering, which penalizes the simple act of depositing stolen money into a bank account.  Prosecutors have enormous discretion whether to add these charges.

Adding a money laundering charge to a wire fraud offense has a palpable impact on the advisory guidelines calculation. Like conspiracy, the guidelines calculation for money laundering uses the guideline for the underlying offense.  But it will add one additional point to the wire fraud calculation (if the laundering is deemed “sophisticated” two more points may also be added). Each additional point will add months (or even years) to the lower and upper ends of the guidelines range. This means the decision to add a money laundering charge has the direct effect of increasing the guidelines approved sentence.

Federal prosecutors have not been consistent in including this charge in PPP cases. In many PPP fraud cases, the government has required defendants to plead guilty to a count of money laundering in addition to fraud.  But in other cases where they clearly could have insisted on such charges, they did not.  See, for example, the following cases:

• United States v. Aditya Raj Sharma (D. Minn. Mar. 10, 2022): The defendant applied for nearly $10 million across 16 PPP loans. He only received a fifth of that amount.  Despite transferring $1.7 million for his personal use, the defendant was not charged with unlawful monetary transactions. The defendant received a 60-month sentence.
• United States vs. Hunter Vanpelt (N.D. Ga. Jan. 10, 2022): The defendant fraudulently obtained $6 million in PPP loans. The defendant pled guilty to one count of bank fraud.  No laundering offense was ever charged even though the defendant allegedly “moved the funds between bank accounts associated with various entities, and conducted other financial transactions, in order to, among other things, conceal the fact that [he] was not using the loan proceeds for payroll expenses.”
• United States vs. Didier Kindambu (E.D. Va. Oct. 27, 2021): Despite titling a section of its sentencing memo “Kindambu Launders and Then Willfully Misuses the Proceeds to Fund His Lavish Lifestyle,” the government dropped all money laundering charges in a $2.5 million PPP fraud conspiracy. He received just 33 months.

While judges could technically run the sentences for the fraud charge and the money laundering charge consecutively, this almost never happens.  However, the difference in charging still matters because the sentencing guidelines for individuals who have money laundering charges in addition to wire fraud charges are higher.

18 U.S.C. § 1001 – False Statements to a Government Agency

PPP fraud necessarily involves making a false statement to the Small Business Administration. The government allows some defendants to plea to this lesser crime instead of wire fraud. As with conspiracy cases, a false statements count caps the available sentence at 5 years. But unlike conspiracy or money laundering, prosecutors in false statements cases may apply the obstruction of justice guidelines. Calculations under that guideline generally start at a higher base offense level, but far fewer specific offense characteristics would apply to this type of fraud. The result is a lower advisory sentencing range.  But even if the general fraud guidelines apply, the five-year cap has the same effect as a conspiracy charge and does not require an accomplices.

In some cases, prosecutors have allowed defendants to plead guilty to such charges.  See, for example, United States v. Janola Massaquoi  (W.D. La. Sep. 1, 2022), where the defendant was allowed to plead guilty to one count of false statements to a federal agency in violation of 18 U.S.C. § 1001(a)(2), which carries a maximum sentence of 5 years, for PPP and EIDL frauds that totaled over $670,000.

Loss Amount and Specific Offense Characteristics

Charging decisions limit and expand the statutory maximum and guidelines sentencing ranges but often lead back to the fraud guideline in one way or another. Because that guideline contains multiple opportunities to increase the sentencing range, minor points in the plea agreement can significantly affect the guidelines range presented to the judge at sentencing.

One major area of inconsistency is actual versus intended loss.  As we discuss in our post regarding the fraud loss table, the advisory sentencing range in fraud cases is pegged to the amount of money involved in the fraud offense.  The guidelines require the application of “intended loss,” rather than “actual loss,” where intended loss can be calculated.  So, for example, if an individual tried to obtain $10 million in paycheck protection program funds through applications for 10 different companies but received only $1 million for one application for one company, then that person should in theory be responsible for $10 million in intended loss and thus subject to a higher guideline range.  Many judges have recognized that this kind of math is unfair, but it remains the rule under the federal guidelines.

However, in the context of PPP fraud charges, prosecutors have not been consistent in their application of the loss amount.  Although they often insist on the application of the higher intended loss amount, some prosecutors have been willing to apply only the actual loss amount.  Compare the following examples:

• United States v. Michael J. Moller (D.R.I., Oct. 14, 2021): The defendant “submitted 11 fraudulent loan applications totaling $4,725,742 in his own name, and in the names of his father, the son of his girlfriend and the brother of his girlfriend. [The defendant] received $699,251 from these fraudulent loans[.]” The parties agreed to an intended loss of 1.3 million, closer to the actual than the attempted.  The defendant received a 70-month sentence.
• United States v. David Tyler Hines (S.D. Fla. May 17, 2021): The government initially alleged the defendant sought $13 million in fraudulent loans. Despite this intended loss, the sentencing guidelines calculation used the actual loss of $4.8 million.  The defendant received a 78-month sentence.

With:

• United States v. Leonel Rivero (S.D. Fla. Nov. 17, 2021): The defendant, who obtained $900,000, had to accept a plea range covering his intended loss: $2.3 million.

Similarly, specific offense characteristics of the fraud guideline can drive up the advisory sentencing range.  Yet, these have not been applied consistently by federal prosecutors in PPP fraud cases.  For example, a defendant may incur two additional points for fraud involving major disaster or emergency benefits.  Yet, in some PPP cases, federal prosecutors have not insisted on the application of this provision.  Consider, for example, United States v. Gaughan (D.D.C. Sep. 2, 2022), where the government declined to apply the enhancement for fraud effecting major disasters and emergencies (despite the suggestion of probation and a statement from the court that the enhancement would apply).

Key Points for Plea Negotiations and Sentencing in PPP Fraud Cases

Based on the issues described here, there are a few key takeaways for purposes of plea negotiations and sentencing in PPP fraud cases.

Carefully negotiate the charging statute.  As discussed, the starting point for the sentencing guidelines will be the charging statute.  Especially if the case involves loss in the hundreds of thousands or millions of dollars, a charging statute with a high end of five years is invaluable to limit potential punishment.  There is strong precedent for a conspiracy charge under 18 U.S.C. § 371, if such a charge us supported by the facts.  Alternatively, as noted above, prosecutors have also relied on 18 U.S.C. § 1001(a)(2), which likewise is limited to five years.  If you cannot limit exposure to five years, other statutes may provide a path to a 10-year maximum.  One such statute is , which criminalizes the theft of public funds.

Relatedly, you should seek to negotiate an agreement that does not include money laundering charges, to avoid an increase in the guidelines range that comes with such charges.  Such a request is not unreasonable.  Almost every fraud offense involves conduct that can be the basis for such charges, but prosecutors frequently decline to bring them.  Moreover, in the PPP fraud context and in fraud cases more generally, there is strong precedent for not including such charges.

Remember that, once committed, prosecutors are loathe to lower a plea offer. So, the best time to approach them about negotiating charging statutes is during the investigation, and certainly prior to the issuance of an informal or formal plea offer.

Seek the application of actual, rather than intended loss, if the difference makes a significant impact on the guidelines.  As shown above, prosecutors do not uniformly insist on the application of intended loss.  Since US Attorney’s Offices are all part of the same agency—the DOJ—they should be expected to apply consistent practices when it comes to these decisions.  Have the actual-loss cases ready when you enter negotiations to support the request.

Do not agree to special offense characteristics that can be avoided.  As demonstrated, prosecutors sometimes do not require the application of all possible special offense characteristics.  In any case in which prosecutors are insisting on such characteristics, defense counsel should carefully review prior plea agreements from the specific US Attorney’s Office, and if necessary, from other districts.  As an alternative, seek to keep certain offense characteristics open for argument at sentencing.  Sentencing judges who see that the DOJ has not insisted on the application of the very same enhancements under similar circumstances may elect not to apply them.

If all else fails, prepare to show the government’s inconsistent practices to the sentencing court.  At sentencing, the judge must consider, among other things, “the need to avoid unwarranted sentencing disparities.”  This is not just the law, but common sense.  After all, why should one defendant who obtained $5 million in fraudulent proceeds face a sentence of five years or less, while another defendant with the same loss amount can receive double that sentence?

For each aspect of the plea agreement and the government’s sentencing recommendation that diverges from more favorable precedents, defense counsel should be prepared to show this to the sentencing court.  Showing that the advisory sentencing range before a court is largely a function of the prosecutor’s decisions may convince sentencing courts to discount the guidelines.

[1]           DOJ Press Release covering arrest is available at https://www.justice.gov/usao-sdny/pr/3-defendants-arrested-over-13-million-fraud-scheme-obtain-loans-intended-help-small.