United States v. Joseph.
No. 23-1192. 7/29/2024. D.Colo. Judge Murphy. CARES Act—COVID-19 Relief Programs—Embezzlement or Theft of Health Care Benefit Program Funds—Wire Fraud—Sufficiency of Evidence—Evidentiary Rulings—Jury Instructions—US Sentencing Guidelines.
July 29, 2024
Joseph, a doctor, founded Springs Medical Associates (Springs Medical), a medical practice. He managed and controlled the practice until January 2020, when Springs Medical adopted a Joint Action Document that appointed Papalini as Springs Medical’s chief operating officer and gave him the authority and discretion to make all operational decisions for Springs Medical, including financial decisions. After the Joint Action Document was executed, while Joseph remained a shareholder, his role was reduced to serving as a physician-employee. In March 2020, right after the CARES Act became law, Joseph opened an unauthorized bank account in Springs Medical’s name and named himself the sole signatory. Between March and June 2020, he submitted several false and unauthorized applications on Springs Medical’s behalf for the Accelerated and Advance Payment Program (AAP) and the Paycheck Protection Program (PPP), which were federal COVID-19 relief programs facilitated by the Small Business Administration (SBA) and processed by third-party lenders. As a result, Joseph received over $250,000 in federal aid, which he disguised from Springs Medical leadership and ultimately misspent for his own benefit. A jury convicted Joseph of embezzlement or theft of health care benefit program funds under 18 USC § 669 and wire fraud under 18 USC § 1343.
On appeal, Joseph argued that there was insufficient evidence to support his convictions. However, direct and circumstantial evidence supports both convictions, including Joseph’s numerous false certifications on his applications, his covert financial activity, and his self-enrichment from his scheme. Therefore, the jury’s conviction on both counts was reasonable.
Joseph also contended that the district court made improper evidentiary rulings by (1) denying him the opportunity to fully cross-examine SBA counsel and a lender’s employee and (2) denying his request to submit an exhibit of Springs Medical’s authorized PPP loan from May 2020. Here, there was no viable connection between the lender’s behavior and Joseph’s fraud, so the district court’s decision to limit the cross examination was not arbitrary. And the district court properly denied introduction of the exhibit because it was not relevant to determining Joseph’s intent, and it risked misleading the jury.
Joseph further asserted that the district court improperly admitted expert testimony as lay testimony. Here, while certified fraud examiner Petron’s testimony went beyond the mathematical analysis permissible for lay witnesses in scope and kind, other evidence of Joseph’s financial activity covered the same ground. Accordingly, the district court’s error was harmless.
Joseph also argued that the district court improperly allowed the government to introduce Fed. R. Evid. 404(b)(1) propensity evidence. At trial, the government sought to introduce evidence that, after the events underlying the charges in the indictment, Joseph withdrew $241,000 in Medicare funds from Springs Medical’s official business account without authorization in November 2020. The district court determined that the evidence was offered to show Joseph’s intent and lack of mistake and was thus relevant. The court then conducted a prejudice analysis under Rule 403, which resulted in a restriction of related evidence to prevent jury confusion; and the court offered an appropriate and complete limiting instruction when the evidence was presented at trial. Accordingly, the district court properly considered all of the necessary Rule 404(b) steps and did not abuse its discretion in admitting the evidence.
Joseph additionally contended that the district court erred by not specifically instructing the jury that failing to repay a debt is not a crime. Here, the government did not raise a failure-to-repay argument, and the record did not otherwise support it; and the district court assured Joseph that it would exclude any argument that indicated nonpayment constitutes theft. Therefore, the district court did not abuse its discretion in declining to give the instruction.
Lastly, Joseph contended that the district court miscalculated the economic loss under the sentencing guidelines. He maintained that his first failed PPP loan application from April 2020 was not relevant conduct as defined by US Sentencing Guideline (USSG) § 1B1.3(a), so it should not have been included as “intended loss” under USSG § 2B1.1(b)(1). The district court determined that based on the similar nature, close proximity, and shared purpose of Joseph’s first PPP loan request, it was relevant conduct to his later, successful application. It thus included Joseph’s $500,000 loan request as intended loss, thereby increasing his assessment from $250,000 to $550,000 under § 2B1.1(b)(1)(H). Under § 1B1.3(a)(1)–(2), relevant conduct for purposes of § 2B1.1(b)(1) includes all acts and omissions that “were part of the same course of conduct or common scheme or plan as the offense of conviction.” Here, Joseph’s first failed PPP loan attempt was relevant conduct under either the common scheme or same course of conduct standard, so there was no clear error in the factual findings underlying the determination that he qualified for an assessment under § 2B1.1(b)(1)(H).
The judgment was affirmed.