7th Circuit upholds convictions, sentences in scheme to defraud SBA

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The 7th Circuit Court of Appeals has upheld the convictions and sentences for five people who took part in a scheme to defraud the Small Business Administration, with the exception of a clerical error in a supervised release condition for one of the defendants.

Chad Griffin, Matthew Smith, Kelly Isley, Kerri Agee and Nicole Smith were convicted after an eight-day jury trial in the Indiana Southern District Court, Indianapolis Division, for a scheme to obtain SBA guarantees for loans that didn’t meet the administration’s guidelines and requirements. They were accused of making false statements on loan-guarantee applications and purchase requests about things such as the borrowers’ eligibility to receive a loan and how loan proceeds would be disbursed.

A grand jury’s original indictment of the five defendants included 13 counts. An amended indictment contained five counts.

Count 1 charged all five with conspiracy to commit wire fraud affecting a financial institution, Counts 2 through 5 charged wire fraud affecting a financial institution. Counts 2 and 4 charged Agee, Isley and Nicole Smith, while Counts 3 and 5 charged Agee only.

The district court denied the defendants’ motions for acquittal made both after the close of the government’s case and after the defense rested.

The jury convicted the defendants on all counts, except that Matthew Smith was found guilty of only the lesser-included offense of conspiracy to commit wire fraud.

After the verdict, the defendants renewed their motions for judgment of acquittal, which the district court denied.

The district court sentenced each defendant to a term of imprisonment, plus a term of supervised release. The court also imposed a special assessment on each defendant and a $10,000 fine on Agee.

On appeal, the defendants challenged whether the government constructively amended Count 1 of the second amended indictment at trial, arguing that “a conspiracy, the object of which is to defraud the SBA, cannot be pursued under 18 U.S.C. § 1349” because the SBA is “not a financial institution.”

The 7th Circuit disagreed with that argument, ruling that to convict someone of wire fraud affecting a financial institution, “the wire fraud statute only requires the government to prove that a defendant intended for his or her scheme to defraud someone[;] a financial institution does not need to be the intended victim,” citing United States v. Marr, 760 F.3d 733 (7th Cir. 2014).

The defendants also argued they are entitled to a judgment of acquittal because the government didn’t prove the wire fraud scheme deprived the SBA of a protectable money or property interest.

But a “fair reading” of the government’s case, the 7th Circuit ruled, “makes clear that the Government’s case is grounded in the defendants’ use of false representations to obtain loan guarantees from the SBA that would not have been granted if the true facts had been made known.”

Contrary to the defendants’ argument that the government chose to pursue a “right to control” theory of money or property fraud, the 7th Circuit said the government’s allegations focused on attempts to deprive the SBA of loan guarantees and the millions the administration lost.

Turning to jury instructions, Agee argued the district court erred in declining to give her proposed jury instruction regarding ambiguity in the SBA’s rules.

The district court declined to give the instruction after concluding there was no evidence of ambiguity.

The 7th Circuit disagreed with Agee, ruling the “good faith instruction given by the district court adequately captured the theory of defense reflected in Ms. Agee’s proposed ambiguity instruction — that is, that she did not have the requisite intent to defraud because she acted in compliance with a reasonable interpretation of the SBA’s rules.”

Agee also argued her convictions on Counts 2 through 5 should be vacated because the district court’s issuance of a Pinkerton instruction projected the “error” in the conspiracy charge onto the counts.

She did not object to the instruction at trial, so, reviewing only for plain error, the 7th Circuit found that because there was no constructive amendment of the indictment and no error in declining to give the ambiguity instruction, “there also was no error, much less plain error, in the district court’s issuance of a Pinkerton instruction.”

Griffin and Matthew Smith argued they are entitled to a judgment of acquittal because there is insufficient evidence that they knowingly joined the conspiracy.

The government’s evidence at trial against Griffin and Smith showed they “knew the nature of the scheme to defraud the SBA,” the opinion says. That included Agee forwarding a message to Griffin from the SBA, saying, “They got us … .”

The evidence was sufficient, the 7th Circuit ruled, noting that although the evidence wasn’t “overwhelming” against Smith, a juror could still conclude he participated with knowledge in the scheme.

The defendants also challenged their sentences. They argued the district court erred in calculating the loss amount for purposes of the loss enhancement under U.S.S.G. § 2B1.1(b), in calculating restitution, in applying the sophisticated means enhancement to Griffin and Matthew Smith, and in imposing a condition of supervised release on Griffin in the amended final judgment that is different than the condition announced at his sentencing hearing.

The 7th Circuit disagreed with all  the arguments except for the condition of supervised release on Griffin.

For the loss enhancement, the defendants argued it shouldn’t have been applied to certain loans because the government failed to prove they caused the SBA’s actual loss on those loans.

They said, in part, their conduct didn’t cause actual loss because it didn’t “skew the SBA’s credit evaluation” on the loans.

The 7th Circuit disagreed, ruling the defendants used “an artificially narrow theory of causation.”

For the calculation of restitution, the defendants argued the district court shouldn’t have included one of the loans in the calculation because the loan didn’t affect a financial institution. With the loan in question, the defendants disguised the payment of past-due payroll taxes as “working capital.”

But the 7th Circuit disagreed, ruling the district court did not plainly err in concluding the defendants’ misrepresentations in connection with the loan were part of their overall scheme.

For the sophisticated means enhancement, Griffin and Matthew Smith argued the district court erred because it considered the sophistication of the conspiracy as a whole rather than considering whether each defendant “intentionally engaged in or caused the conduct constituting sophisticated means,” as required by U.S.S.G. § 2B1.1(b)(10)(C).

“After reviewing the relevant parts of the transcript, we are confident that the district court neither misunderstood the governing principle nor misapplied that principle,” the 7th Circuit ruled. “Taken in context, the district court’s statement that it looked at ‘the overall scheme to evaluate sophistication’ clearly meant that it would evaluate the individual defendant’s conduct as a whole in the context of the overall scheme.”

Finally, addressing the condition of supervised release on Griffin, the 7th Circuit agreed that the district court’s omission of the term “if deemed necessary” to a condition related to mental health evaluation and treatment was erroneous.

The 7th Circuit modified the judgment in Griffin’s case so that condition requires that he “participate in a mental health evaluation and treatment if deemed necessary.”

The cases are United States of America v. Chad Griffin, Matthew Smith, Kelly Isley, Kerri Agee, and Nicole Smith, also known as Nicole Smith-Kelso, 21-3326, 21-3352, 21-3361, 22-1012 and 22-1075.