Friday Enforcement Wrap
Taiwanese National, Self-Proclaimed CEO Sentenced To 6 Years For COVID-Related Fraud Schemes
On August 11, 2021, Sheng-Wen Cheng was sentenced to 72 months in prison for his alleged participation in multiple schemes related to Covid-19 pandemic loan fraud and securities fraud. The Department of Justice (DOJ) alleged that Cheng fraudulently obtained over $7 million in government loans designed to provide relief to small businesses impacted by the Covid-19 pandemic. DOJ also alleged that Cheng used materially false and misleading statements to solicit and obtain investments in a company of which he is the CEO, Alchemy Coin Technology Limited, and related companies which he controls.
From April 2020 to early August 2020, Cheng allegedly used false identities to submit online applications on behalf of various companies to the Small Business Administration (“SBA”) and multiple financial institutions for a total of over $7 million in government loans through the SBA’s Paycheck Protection Program (“PPP”), which provides forgivable loans to small businesses for job retention and other identified expenses. In those applications, Cheng allegedly represented that the companies together had over 200 employees who received a total of about $1.5 million in wages monthly, when the companies actually had no more than 14 total employees.
Cheng also allegedly submitted fraudulent tax records, payroll records containing fraudulent signatures, and a payroll summary which listed multiple public figures, including, for example, a co-anchor on Good Morning America, a former National Football League player, and a prominent former Penn State football coach who is now deceased.
According to DOJ, Cheng received deposits of approximately $2.8 million in PPP loan proceeds, but rather than using the funds for approved expenses under SBA’s program, Cheng allegedly spent them on personal purchases, including an 18-carat gold Rolex watch; $17,000 monthly rent for a luxury condominium; $50,000 in furnishings for the condominium; a 2020 S560X4 Mercedes; and purchases totaling $37,000 at Louis Vuitton, Chanel, Burberry, Gucci, Christian Louboutin, and Yves Saint Laurent.
Cheng pled guilty on April 20, 2021, to one count of major wire fraud against the United States, one count of bank fraud, one count of securities fraud, and one count of wire fraud. He was sentenced to 72 months in prison, three years of supervised release, and ordered to forfeit the luxury items seized in connection with his arrest.
The DOJ press release can be found here.
Supreme Court Petition Addresses National College Athletic Association (NCAA) Corruption
On August 4, 2021, former Adidas executive, James Gatto, petitioned the United States Supreme Court for certiorari review of his wire fraud conviction. Gatto argues that his conviction should be overturned because paying college athletes to incentivize them to attend schools sponsored by Adidas is not a federal crime.
In October 2018, Gatto was convicted by a federal jury at a trial in the Southern District of New York for conspiracy to commit wire fraud. Prosecutors argued that Gatto helped direct funds to top college basketball recruits to encourage them to attend colleges sponsored by Adidas, in violation of NCAA rules. The Second Circuit upheld Gatto’s conviction in January 2021.
Gatto’s petition presents three questions: (1) whether the federal wire fraud statute requires the government to prove that the “object” of the alleged wire fraud scheme was to “obtain” money or property from the victim; (2) whether a jury need not be informed before deliberations that “incidental” harms fall outside the bounds of the statute; and (3) whether a “right to control” athletic scholarship decisions constitutes “property” protected by the federal wire fraud statute.
Gatto’s arguments do not center on the validity of the payments, but rather their criminality. In his petition, Gatto explains that the payments “were not themselves illegal: it is not against the law to offer a financial incentive to a family to persuade them to send their son or daughter to a particular college,” but that they were only “unlawful” under the “bylaws” of the NCAA, and that “the whole point of the payments was to get the players on the court, winning games for the Universities.”
The case is James Gatto v. United States of America, et al., No. 21-169, in the United States Supreme Court, and the petition can be found here.
Fruit Broker Manager to Pay $1.25 Million For Alleged Crop Insurance Fraud
On August 9, 2021, Ralph Hackett, member and manager of a Central Valley fruit broker, pled guilty to aiding and abetting mail fraud. As part of his guilty plea, Hackett also agreed to pay a total of $1.25 million to resolve criminal and civil allegations of fraudulent crop insurance claims: $650,000 in criminal restitution for his role in another individual’s submission of a fraudulent crop insurance claim for the crop year 2013, and $605,000 to resolve civil allegations of crop insurance fraud for the crop years 2012 through 2015.
According to court documents, Hackett is a member and manager of a fruit broker with operations in California. The fruit broker sold table grapes, plums, and other crops produced by the other involved individual. DOJ alleged that, at the other individual’s request, Hackett instructed one of his employees to provide fraudulent records underreporting the amount of table grapes sold through the fruit broker so that the individual could submit a fraudulent crop insurance claim for table grapes for the crop year 2013. Hackett then allegedly falsely confirmed the accuracy of the fraudulent records when the insurance company called to verify the records.
According to the settlement agreement, Hackett knowingly instructed his employee to make false records and statements that were material to false or fraudulent claims for indemnification payments for false crop losses to the individual’s crops for crop years 2012 through 2015. This caused more than $650,000 in fraudulent insurance payments, which were federally backed by the Federal Crop Insurance Corporation (FCIC) and were made by checks sent through the mail. The settlement resolves claims that, through this conduct, Hackett violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
Hackett is scheduled to be sentenced on February 22, 2022, and faces a maximum statutory penalty of 20 years in prison and a $250,000 fine.
The DOJ press release can be found here, the plea agreement here, and the civil agreement here.