A criminal under house arrest has used the business to fraudulently apply for epidemic relief

By Brett Rowland (The Center Square)

A convicted felon who stole more than $400,000 from federal pandemic relief programs while serving a sentence for tax fraud and identity theft highlights what officials say are lax controls over billions of dollars in aid given in response to the pandemic.

Carlos Smith, 58, of Park Forest, Illinois, was sentenced this week to four years in prison for epidemic fraud as part of a deal with federal prosecutors.

Smith had just been released from prison and was serving the end of a five-year sentence under house arrest when he began applying for money from the Paycheck Protection Program and the Small Business Administration’s Financial Injury Disaster Loan Program, according to court records.

In 2016, Smith entered a plea agreement for filing false income tax returns and aggravated identity theft. In that case, Smith had his company, CLS Financial Services Inc. used to obtain names, social security numbers and other personal information from people seeking credit repair or assistance in setting up credit card processing programs for businesses. On other occasions, he obtained names and personal information from an unnamed person who worked for the Chicago City Board of Education, according to court documents. From 2011 to 2014, he used that information to file false tax returns and pocket the refunds. In all, they filed 92 false income tax returns to obtain more than $1 million in tax refunds and caused the Internal Revenue Service to issue $633,884 in fraudulent refunds, court records show.

In April 2020, after the pandemic hit, he used the same company, CLS Financial Services Inc., to apply for a financial injury disaster loan from the SBA. In the loan application, CLS Financial Services Inc. Smith claims to have two employees and gross revenue of $1.8 million in the previous year. But the company had no employees and no revenue.

In July 2020, he joined CLS Financial Services Inc. He claimed to have 61 employees to apply for PPP loan using Prosecutors said the company had “no ongoing operations, employees or payroll” because Smith was in federal prison. In total, they received $421,900 in pandemic aid. In the PPP application, prosecutors said Smith lied about his criminal history and filed falsified tax documents.

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The three largest pandemic relief programs — the Paycheck Protection Program, the Financial Injury Disaster Loan and the Unemployment Insurance Program — “have shown to be highly susceptible to fraud,” Pandemic Response Accountability Committee Chairman Michael Horowitz previously told federal lawmakers. month Those three programs accounted for just under $2 trillion in epidemic costs.

The federal government administers both the Paycheck Protection Program and the Financial Injury Disaster Loan.

Horowitz said some fraud can be stopped by verifying that the applicant is an existing legal entity.

“Is it from an IP address from overseas?” He said. “Do names, dates of birth, and social security numbers match? That’s an easy check. Are they on the do-not-pay list? In many of these instances there are several steps that could have been taken that would have at least hit the pause button and taken a second look to make sure they qualify.

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As part of Smith’s latest plea deal with prosecutors, he will be required to pay restitution. Additionally, he agreed not to conduct any business under CLS Financial Services Inc. The judge ordered that he refrain from “tax preparation, fiduciary responsibility, telemarketing, direct mail or advertising, promotions for businesses, and access to credit card numbers, debit.” card numbers, social security numbers or bank accounts” not in his name during the three-year period of supervised release after serving his prison sentence.

Smith’s attorney did not respond to an email seeking comment.

Syndicated with permission from The Center Square.