Springfield business owner pleads guilty to $14 million fraud scheme

(From the U. S. Attorney for the Western District of Missouri)

A Springfield, Mo., business owner has pleaded guilty in federal court to his role in a nearly $14 million wire fraud conspiracy that utilized his businesses, as well as fake businesses, to fraudulently receive loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

John Michael Felts, 48, waived his right to a grand jury and pleaded guilty before U.S. Chief Magistrate Judge David P. Rush on Friday, July 28, to a federal information that charges him with one count of conspiracy to commit wire fraud and one count of wire fraud.

Felts was the owner of several restaurants, including Taco Habitat in Springfield and Branson, Mo.

By pleading guilty today, Felts admitted that he participated in a wire fraud conspiracy that fraudulently obtained or attempted to obtain $13,925,534 through commercial loans as well as Paycheck Protection Program loans and Economic Injury Disaster loans and grants under the CARES Act from January 2018 to Sept. 13, 2022.

The purpose of the CARES Act was to provide emergency financial assistance due to the economic impact caused by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to provide low-interest Economic Injury Disaster Loans to eligible small businesses that experienced substantial financial disruption due to the economic impact of the COVID-19 pandemic. Additionally, the Paycheck Protection Program (PPP) authorized forgivable loans to small businesses to retain workers and maintain payroll, and make mortgage interest payments, lease payments, and utility payments. Under the PPP, both the principal and interest on those loans were eligible for forgiveness.

Felts and another person, a San Antonio, Texas, resident identified in court documents as “Individual-1,” applied for PPP loans and Economic Injury Disaster loans and grants for various businesses they controlled. The conspirators made material misrepresentations about the businesses in the applications, including the purpose of the funding, and submitted fake and forged documents as a part of the application process.

Felts and Individual-1 also created fake businesses that they controlled, under fake identities they created. The conspirators then used these fake businesses and identities, as well as false financial and business documents, to apply for loans.

Felts did not utilize the loan proceeds for the purpose he represented to the lenders in the application process. Instead, he utilized proceeds for his own personal benefit (including vehicles, a yacht, jewelry, rare sports cards, and construction related to personal residences) and for the benefit of other businesses he controlled.

According to a parallel federal civil complaint filed on Sept. 13, 2022, Felts applied for 12 PPP loans using several different companies under his ownership or control. Most of these companies did not have employees and were not in operation at the time of application. Felts also applied for 13 PPP loans using synthesized or fabricated identities and companies under his control.

$2 Million Fraudulent Diagnostic Equipment, Inc., Loans

For example, in January 2020 Felts and Individual-1 set up a business, Diagnostic Equipment, Inc., for the purpose of representing it as a legitimate business, when in fact it was not and did not have any business operations. On April 26, 2020, they submitted a fraudulent PPP loan application for Diagnostic Equipment. Felts, using a fake identity, submitted false materials in support of the PPP loan application, such as false tax statements and payroll summaries. On June 18, 2020, they applied for an EIDL in the name of Diagnostic Equipment.

After receiving $1,029,100 in PPP and EIDL proceeds, Felt spent $157,000 of the proceeds to pay off a personal real estate loan, spent $39,000 to pay off a loan for a 2018 Cadillac CT6, spent $40,000 to pay off a loan for a 2018 Jeep Wrangler (which he gave as a gift to a relative), and spent $5,000 to make a down payment for the purchase of personal real estate.

On April 25, 2021, Felts submitted a fraudulent PPP loan application for Diagnostic Equipment for a second round of PPP loans. Felts received $1,054,494 in PPP loan proceeds and spent $150,000 for a corporate suite sponsorship with the Kansas City Chiefs, spent $213,000 to pay a loan on a 2021 Galeon 470SKY Yacht, spent $30,000 for construction on his personal residence, and spent $12,180 on sports memorabilia.

$310,000 Fraudulent Taco Habitat Loan

In May 2020, Felts and Indivdiual-1 submitted a PPP loan application for Taco Habitat in Branson. This application contained material misrepresentations, including the number of employees for the business.

After Felts received $310,000 in PPP proceeds for Taco Habitat in Branson, he spent $58,594 to purchase a 2020 Jeep Wrangler (which he gave as a gift to another individual) and spent $125,707 for the purchase of personal real estate.

Under the terms of today’s plea agreement, Felts must pay restitution in excess of $9.9 million and a money judgment in an amount to be determined at sentencing, but not less than of $7 million, which represents the amount of fraudulent proceeds he actually received from the conspiracy.

Felts also agrees not to contest the government’s forfeiture of personal property and real estate purchased with the proceeds of the wire fraud conspiracy in two civil forfeiture complaints filed on Sept. 13, 2022, and Jan. 26, 2023. That property includes four parcels of real estate in Springfield, six vehicles, a yacht, two Rolex watches, five additional pieces of valuable jewelry, a 1952 Topps Jackie Robinson baseball card, a 1980-1981 Topps Larry Bird, Julius Erving, and Magic Johnson card (signed by all three players), and a 1909-1911 Ty Cobb baseball card.

Under federal statutes, Felts is subject to a sentence of up to 40 years in federal prison without parole. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

This criminal case is being prosecuted by Assistant U.S. Attorney Casey Clark and the civil case is being handled by Assistant U.S. Attorney Anthony M. Brown. Both the criminal and civil cases were investigated by IRS-Criminal Investigation.