Charges Added Under Superseding Indictment Did Not Violate Compulsory Joinder Rule
In Illinois, the compulsory joinder rule requires that multiple charges against a defendant must be joined in a single prosecution if three conditions are satisfied: (1) the multiple charges were known to the state when the prosecution began; (2) the charges are within the jurisdiction of a single court; and (3) the charges were based on the same act. People v. Sykes, 2017 IL App (1st) 150023, ¶37, 96 N.E.3d 468, 420 Ill.Dec. 383, citing 720 ILCS 5/3-3(b).
If the compulsory joinder rule applies, then the multiple charges are subject to the same speedy-trial period, which begins to run when the trial demand is filed, even if some of the charges are brought later. The filing of a new charge does not create a new speedy-trial period for the added charge. Instead, continuances that were obtained for the original charges will not be attributed to the defendant or toll the speedy-trial clock for the added charges. Sykes, supra, 2017 IL App (1st) 150023 at ¶38, citing People v. Phipps, 238 Ill.2d 54, 933 N.E.2d 1186, 342 Ill.Dec. 893 (2010).
This doctrine is commonly known as the “Williams rule” from People v. Williams, 94 Ill.App.3d 241, 418 N.E.2d 840, 49 Ill.Dec. 820 (1st Dist. 1981). The purpose of the Williams rule is to prevent “a trial by ambush.” Sykes, supra, 2017 IL App (1st) 150023 at ¶38.
In People v. Dryer, 2021 IL App (2d) 190187, the Second District Appellate Court held that the defendant was on notice about the state’s filing of additional charges, and therefore his speedy-trial rights were not violated. The defendant was initially indicted in 2015 for predatory criminal sexual assault, sexual exploitation of a child, indecent solicitation of a child, and aggravated criminal sexual abuse. The defendant had been interacting with two minors through the Internet. 2021 IL App (2d) 190187 at ¶¶3 – 6.
The defendant remained in custody as the case progressed. In 2017, the state filed a superseding indictment that added child pornography counts. 2021 IL App (2d) 190187 at ¶7. The defendant was found guilty of all counts at trial. On appeal, the defendant argued that his speedy-trial rights were violated on the child pornography charges. 2021 IL App (2d) 190187 at ¶¶13 – 15. Although the defendant was charged with new child pornography charges two years later, the Second District held that the defendant’s speedy-trial rights were not violated. 2021 IL App (2d) 190187 at ¶15. The Dryer court focused on whether the child pornography charges constituted “new and additional charges.” 2021 IL App (2d) 190187 at ¶23.
The Dryer court noted that the Supreme Court has held that the Williams rule should not be used when the original charging instrument gave the defendant sufficient notice of the subsequent charges to prepare for trial on those charges. If the original charges provided the defendant with sufficient notice of the subsequently filed charges, then the subsequent charges are not “new and additional” charges under the speedy-trial analysis. A defendant is presumed to have received sufficient notice of subsequent charges when the later charges allege the same conduct as the original charging instrument. This is evident when the new and original charges contain the same essential elements and penalties. However, variances between the elements and charges do not automatically render the subsequent charges “new and additional” charges. 2021 IL App (2d) 190187 at ¶¶19 – 20.
Therefore, any delay attributable to the defendant on the original charges would also be attributable to the defendant on the subsequent charges. Id., citing People v. Moffett, 2019 IL App (2d) 180964, ¶30, 148 N.E.3d 736, 439 Ill.Dec. 683.
The court looked to its previous decision in Moffett, which held that the original charge of aggravated battery to a correctional officer causing bodily harm proved sufficient notice of the new charge of aggravated battery to a correctional officer “of an insulting or provoking nature.” 2021 IL App (2d) 190187 at ¶21, quoting Moffett, 2021 IL App (2d) 190187 at ¶¶21 – 22. The Moffett court found that both charges were based on the same conduct, and therefore the new charge was not “new and additional.” 2019 IL App (2d) 180964 at ¶¶43, 50.
In its case, the Dryer court concluded that the original and superseding indictments were based on the same conduct. For instance, the original indictment alleged that the defendant knowingly solicited the minors to remove their clothes and perform sexual acts for the arousal of the defendant, and that this solicitation took place by means of the Internet. Therefore, it was clear that the state would try to prove that the defendant watched the minors remotely. 2021 IL App (2d) 190187 at ¶24.
The superseding indictment alleged all of the original charges and reiterated the same conduct. The child pornography charges alleged that the defendant produced a film in which the minors were coerced into appearing. Accordingly, the later counts “naturally followed” from the same conduct in the original indictment. Thus, the defendant was inherently on notice of the child pornography charges. 2021 IL App (2d) 190187 at ¶25.
The court also concluded that any variation in the elements of the charging instruments was insufficient to overcome the fact that the defendant was on notice of the child pornography charges. 2021 IL App (2d) 190187 at ¶33. Therefore, there was no speedy-trial violation. 2021 IL App (2d) 190187 at ¶36.
Federal Prosecution of Paycheck Protection Program Fraud
As has been much publicized, in March 2020, in an attempt to combat the impact of the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub.L. No. 116-136, 134 Stat. 281 (2020). The Act created the Paycheck Protection Program (PPP). 15 U.S.C. §636(a)(36). The PPP is “a multi-billion-dollar loan guarantee program.” United States v. Crowther, Case No. 2:20-cr-00114-JLB-MRM, 2021 WL 50481, *2 (M.D.Fla. Jan. 6, 2021), quoting All Sorts of Services of America, Inc. v. U.S. Small Business Administration, Case No. 8:20-cv-1688-TPB, 2020 WL 6270915, *1 (M.D.Fla. July 31, 2020). The PPP has already provided hundreds of billions of dollars in funds to companies that experienced business interruption or other negative consequences arising out of the pandemic. In March 2020, Congress approved $349 billion in forgivable loans, with an additional $320 billion authorized the following month. On December 21, 2020, an additional $284 billion was authorized for the PPP, which made it possible for businesses to apply for a second loan. The main difference between the two rounds was that to qualify for the second round, businesses had to certify that they sustained a 25-percent drop in revenue in at least one quarter in 2020 as compared to 2019. The second draw was also available only after the business received and used the loan from the first round.
At least in theory, those PPP funds were geared toward employee payment and retention, as well as business continuity. In certain circumstances, PPP loans can be eligible for loan forgiveness, making these funds an extremely valuable tool for businesses during this time.
To receive a PPP loan in the first instance, borrowers apply to participating lenders and are thus required to make “good faith certifications,” including that the loan funds will be “used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.” 15 U.S.C. §636(a)(36)(G)(i). In connection with the PPP loan being made, the applicant-borrower executes repayment documentation with the lender, and the funds are disbursed directly by the lender. A borrower’s PPP loan can be 100-percent forgiven if the borrower is able to meet certain criteria. See15 U.S.C. §636m(b). These certifications include (1) “[t]he Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors”; (2) “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”; and (3) “[t]he funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.” See SBA Form 2483, Paycheck Protection Program Borrower Application Form (Apr. 2020). In addition, to incentivize the lenders to participate in the PPP and make the loans, the federal Small Business Administration (SBA) guarantees the loan. See 15 U.S.C. §636(a)(2)(F).
The Act allows the SBA to make regulations/rules. See 15 U.S.C. §9012. One of those SBA-created PPP rules states that “[i]f you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud.” 85 Fed.Reg. 20,811, 20,814 (Apr. 15, 2020). However, to be clear, the Act does not actually include provisions for criminal enforcement. In other words, the Act does not “create a new crime for misusing PPP funds.” Crowther, supra, 2021 WL 50481 at *3.
That does not matter. Instead, PPP fraud crimes are subject to criminal prosecution under various preexisting statutes on which criminal charges for fraud-type activity in connection with obtaining PPP loans can be premised. With the significant amount of money that was injected into the economy with very few conditions, the situation lent itself to rampant fraud. Given the emergency nature of the situation, participating lenders liberally doled out PPP loans with mere certifications and minimal documentation. Early on, federal prosecutors targeted low-hanging fruit, going after clear cases of fraud when individuals purchased exotic cars, used the money for personal use, or misrepresented having employees when they had none. For example, on February 10, 2021, a Florida man pleaded guilty after receiving $3 million in PPP loans and using the funds to purchase a Lamborghini and pay other personal expenses. News Release, United States Department of Justice, Man Purchased Lamborghini After Receiving $3.9 Million in PPP Loans (Feb. 10, 2021). Despite the government’s prior focus, it is a certainty that less obvious cases can and will be charged under the statutes with which federal prosecutors are armed.
Existing Federal Statutes Providing Bases of Prosecution
Nothing puts more of a shiver into a business owner or employer than the threat (or actuality) of federal prosecution. Participation in the PPP program has resulted in numerous federal prosecutions for PPP fraud. Of course, there is no specific federal statute or regulation that defines or specifically prohibits PPP fraud. Nonetheless, federal prosecutors have numerous existing bases for bringing charges based on alleged PPP fraud. Some of the more readily apparent and commonly used theories of liability are identified below.
PPP Fraud and False Statements
18 U.S.C. §1001 creates a general prohibition against false statements made to any branch or agency of the federal government. Given that the PPP is a federally administered program, any PPP applications or loans are subject to the provisions of §1001. Similarly, 18 U.S.C §1014 criminalizes the making of false statements in connection with applications for loans to federally insured financial institutions, including banks. In the PPP context, because the applications for PPP loans are often made directly to federally insured banks, this statute provides a ready mechanism for charging business owners (and/or those actually executing the loan documents) with a federal crime. The maximum possible penalty for violations of this statute includes up to 30 years in federal prison and up to $1 million in fines. However, the actual or intended “loss amount” will greatly influence the “Offense Level” that will be applied under the Federal Sentencing Guidelines, and thus a sentence for this type of offense will likely never approach or come near those types of draconian penalties. It should be noted that prosecutions under this statute will not require a prosecutor to prove that the false statement was made to the SBA in circumstances in which the loan application was instead made directly to a federally insured financial institution. Defenses to such charges will include that the executing party lacked sufficient reliable information, that the executing party relied in good faith on information supplied by another member of the entity in good faith, and/or that the alleged false statement was not material to the decision to issue the loan.
18 U.S.C. §1344 provides yet another basis for criminal liability in connection with the submission of fraudulent PPP loan application documents. The statute stipulates that whoever knowingly executes, or attempts to execute, a scheme to either defraud a financial institution or obtain money under false pretenses can be guilty of bank fraud. The excessive maximum penalties referenced above with respect to false statements also apply to these types of violations. This offense requires a prosecutor to prove an underlying “scheme or artifice . . . to defraud,” in addition to establishing that the PPP applicant carried out such scheme by means of false or fraudulent pretenses, representations, or promises. Id.
18 U.S.C. §1343, the wire fraud statute, is another vehicle for prosecutors to pursue fraud in connection with the application for, and receipt of, PPP monies. It will be a relatively straightforward task to prosecute one who uses a wire communication in further of obtaining such funds. The “scheme or artifice to defraud” that underlies this offense would be, of course, one to obtain money under false or fraudulent pretenses. Id. The penalties for violations of this statute in connection with PPP fraud are less daunting, although on the books one can receive a term of imprisonment of up to 20 years, in addition to a fine of up to $500,000. Id. This has been and should continue to be low-hanging fruit for prosecutors pursuing PPP fraud. A defendant will have to attempt to defend and prevail under the theories that there was no underlying scheme to defraud and that the attempt to receive the PPP monies was made in good faith, based on incomplete information from underlings, or based on mistaken assumptions or inaccurate information.
One of the feds’ go-to charges, conspiracy, can be successfully asserted and pursued under 18 U.S.C. §§371 and 1349 when multiple fraudsters are involved in the PPP conduct. On January 28, 2021, six individuals were charged in the Northern District of Georgia with a $3 million PPP fraud scheme and were charged with conspiracy to commit bank fraud, bank fraud, giving false statements to a financial institution, and money laundering. See News Release, United States Department of Justice, Six Charged in Connection with a $3 Million Paycheck Protection Program Fraud Scheme (Jan. 28, 2021). This has the added benefit of putting pressure on “lower” members of the conspiracy to help make prosecutors’ claims against the more significant targets. In addition, merely conspiring to pull off the commission of PPP fraud can result in the very same types of penalties as if the offense had been carried out successfully. From a defense perspective, this can create opportunities to differentiate one’s client from the other alleged conspirators and/or allow a defendant to pursue an approach of no knowledge or ignorance of the conspiracy and to claim that he or she was simply carrying out what he or she believed to be honest business activities.
False Statements to Federal Agents
Another fed favorite pursuant to 18 U.S.C. §1001 is giving false statements to federal agents. As is commonplace, the acts of business owners and others involved in the PPP submissions (well after the actual fraud has been committed) may result in criminal prosecutions that are far easier to prove than the actual underlying conduct. Here, as agents fan out across the country in pursuit of PPP fraud, many individuals will find themselves facing unplanned, or even attorney-attended, interviews about the underlying PPP submission and use of funds. Such inquiries may also take the form of seemingly innocuous PPP “audits.” All those facing such hard or soft interrogations would be wise to keep in mind that the penalties for false statements designed to cover up the PPP fraud can still be quite stiff, with substantial fines to both businesses and individuals and up to five years in prison. Individual employees would be well advised to undergo such questioning with the presence, or at least the prior advice, of counsel and to consider whether it is in one’s best interests to participate at all. The interests of the employer-business loan recipient should never trump the interests of the individual employee, who may mistakenly believe that it is his or her interests to tow the company line in furtherance of the PPP fraud.
Many of the PPP fraud schemes involve fraudsters using business and personal information that does not belong to them — for instance, an application, receipt, and use of substantial sums for a business that is not the applicant’s, or the same for a business that essentially exists only on paper or is in its infancy. To the extent identity documents are used, prosecutors can pursue aggravated identity theft charges pursuant to 18 U.S.C. §1028, in addition to some or all the other offenses enumerated above.
As with many fraud schemes, individuals may wrongfully reap whopping infusions of cash, which of course is typically not in turn reported as income at year-end. Many of the federal prosecutions to date involving PPP fraud also involve individuals using the moneys to make lavish purchases. Such tax fraud may also appear in the form of companies falsely claiming tax deductions for so-called business expenses that were actually purchased with PPP funds. Accordingly, by using 26 U.S.C. §7201, prosecutors can pursue individuals and entities that take the PPP money and use it for non-PPP purposes. That additional unclaimed income can serve as yet another basis for federal criminal liability, along with the slew of other charges outlined above. Individuals and businesses should take great care to keep detailed records of how PPP funds have been spent and of course resist the temptation to view the funds as an opportunity for a free-spending windfall.
There are many signs to indicate an upcoming uptick in white collar criminal prosecutions, the first being the emphasis on hiring and staffing at the Department of Justice during the Biden administration that was not present during the Trump administration. Second, the Biden administration will likely resemble the Obama administration in its focus on regulation and enforcement, which differed from the Trump administration’s allocation of resources to combat street crimes. Furthermore, in 2011, when the nation was recovering from the financial crisis, there was an uptick in white-collar criminal prosecutions, and as the crisis dissipated over time, it exposed a lot of fraudulent conduct that took place when that conduct could not be addressed. Similarly, today, as the world recovers from a global financial crisis, and with the U.S. government injecting billions of dollars into the economy with government-backed forgivable stimulus loans, there will be enforcement of allegations of fraud and abuse. As outlined above, the government has several statutory weapons at its disposal to charge criminal conduct surrounding PPP loans and can use those to aggressively target individuals and corporations.
For more information about criminal law, see FEDERAL CRIMINAL PRACTICE (IICLE®, 2019). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.