I had the opportunity to speak to Nicole Hughes Waid a partner at Fisher Broyles, following her trial in the case of United States v. Casey David Crowther, Case No. 20-cr-00114 (M.D. Fla.). Crowther was one of the first people charged by the federal government with fraud related to the receipt of Paycheck Protection Program (“PPP”) funds.
Crowther is the owner of a roofing business. His Company applied for and received a $2.1 million loan from a lender pursuant to the PPP. Following receipt of the funds, Crowther purchased a boat valued at approximately $689,417 and made a $100,000 payment on a promissory note to a prior business partner. During the covered period, Crowther paid over $2.1 million in salaries to employees.
Before Crowther applied for forgiveness of the loan, and before the loan became due, Crowther was indicted. The government alleged that Crowther used PPP funds to purchase a boat. Crowther maintained that he used the sum of the loan on allowable expenses, including payroll.
As part of a global defense strategy, Ms. Waid opted to go to trial quickly. Because the case involved complicated legal issues, Ms. Waid also requested a bench trial. The government refused and insisted on a jury trial.
At trial, the government’s theory was that money is not fungible and that it is criminal for the recipient of a PPP loan to purchase a boat even though there is no loss to the bank. The defense’s theory was that Crowther complied with the CARES Act and the government cannot create additional restrictions that do not exist in the enabling statute.
The most important testimony at trial came from a bank representative and a government witness. The bank representative testified that the loan to Crowther remains on the books as a performing loan and that the bank does not consider itself a victim. The bank representative also testified that the PPP loan funds are bank funds that areonly guaranteed by the Small Business Administration in the event of a default on the loan or if the borrower is eligible for forgiveness.
John Miller, the Associate Administrator at the Office of Capital Access for the SBA, testified that financial need is subjective and in the eye of the beholder at the time of the PPP application. This is a key statement for defense practitioners defending clients against allegations of PPP fraud. It also provides a comfort level to those entities that have sought and obtained PPP funds despite a stable economic position.
Unfortunately, Crowther was found guilty. The jury only deliberated for 2 hours. A clear indication that they did not understand the complicated legal issues presented by the case. Additionally, it is also a sign that the jury convicted Crowther based on the overwhelming “bad act” evidence the government was permitted to introduce.
But all is not lost for Crowther. He has very strong legal issues for appeal. Particularly, this is a statutory construction case and the issue of notice will likely feature prominently in the appeal. The government could not keep the CARES Act straight in the superseding indictment or trial and misstated the CARES Act throughout the trial. A law that the government cannot properly articulate is surely too vague and confusing for a businessman to properly interpret and understand.
The Eleventh Circuit’s decision in United States v. Takhalov, 827 F.3d 1307, 1310, (11th Cir. 2016) is instructive for the appeal in Crowther. In Takhalov, the 11th Circuit held that the panel reversed the wire fraud convictions, holding that a defendant may not be convicted of fraud merely because he deceives another to cause him to engage in a transaction, if the transaction otherwise provides the customer with exactly what he paid for (in this case, expensive drinks at a bar). Here, the bank representative made clear that the bank received exactly what it bargained for during the loan transaction.
The government’s issues in Crowther will not be limited to a reversal on appeal. Because the bank representative testified it was not a victim and the loan was still performing on its books, there is no loss. The government might try to argue that the loss was “intended,” but this would be inconsistent with the hard facts – the loan has not become due.
Crowther is a good example of the fact juries don’t always get it right. The good news for Crowther is that Ms. Waid did an excellent job of creating a record for the appeal of the conviction.