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United States v. DiCosola

United States Court of Appeals, Seventh Circuit

August 14, 2017

United States of America, Plaintiff-Appellee,
MICHELE DICOSOLA, Defendant-Appellant.

          Argued May 24, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:12-cr-00446-l - Harry D. Leinenweber, Judge.

          Before POSNER, Manion, and Kanne, Circuit Judges.

          Manion, Circuit Judge.

         The financial crisis of the late 2000s hit Middle America quite hard. According to an analysis of United States Census data, over 170, 000 small businesses shut down during the first two years of that recession.[1] Owners were faced with tough choices-many putting their businesses through bankruptcy, many losing personal fortunes, many foregoing salaries to keep their operations running and workers employed. These were legitimate options. Some, however, chose illegitimate options. By all accounts, Michele DiCosola was, until 2007, a legitimate business owner. But when the crash came, he engaged in loan fraud and tax fraud in order to make ends meet. While his personal story is unfortunate, it does not excuse his criminal conduct. Because we find no abuse of discretion in any of the district court's rulings on appeal, we AFFIRM Michele DiCosola's conviction and restitution orders.

         I. BACKGROUND

         Michele DiCosola is the son of first-generation Italian immigrants. In the late 1990s he started a business, CD Shape Cutters, which produced compact discs (physical, digital storage devices) in novelty shapes, which were used as promotional items. The business did very well, morphing into a full-service printing and duplicating business, ultimately reaching about $1 million in gross annual sales and employing up to ten people, including DiCosola's immigrant father, Michelangelo. Michelangelo even invested his retirement savings in the business.

         In about 2005, Michele DiCosola started a side business for producing Latin pop music. This new endeavor quickly sapped cash from CD Shape Cutters, and in 2007, CD Shape Cutters began to experience serious financial difficulties. In September 2007, DiCosola applied to Citibank for a home loan to refinance his mortgage, but was rejected for insufficient income: he provided authentic 2005 and 2006 tax returns which showed negative income, and income of a few thousand dollars, respectively. He applied to Citibank for a home loan again in 2008, this time providing fabricated, never-filed 2005, 2006, and 2007 tax returns that inflated his income by hundreds of thousands of dollars. These fabricated returns were signed by DiCosola's accountant, John Cerami. The loan application was accompanied by a release that would have allowed Citibank to obtain his prior tax returns directly from the IRS. Unfortunately for Citibank, it had shredded copies of DiCosola's accurate tax returns from his prior application but did not obtain from the IRS his currently-filed returns. In other words, while Citibank had the means to discover DiCosola's real income, for whatever reason it did not do so. Without that information, Citibank issued DeCosola a loan in the amount of $273, 567, which he immediately used to pay off other debts.

         Also in 2008, DiCosola applied for two business loans with Amcore Bank, and provided Amcore the same fabricated tax returns for 2005, 2006, and 2007. Amcore approved the loans and funded them in July 2008. The first loan-for $450, 000- DiCosola used to pay off another business loan. The second loan was a $300, 000 line of credit which DiCosola used to pay employees and fund business operations at CD Shape Cutters. In early 2009, after a few payments DiCosola defaulted on both the Amcore loans and the Citibank loan.

         Also in early 2009, DiCosola prepared and filed his own tax returns. In Schedule B of his return, he listed his various loan/borrowing transactions with banks going back three years, with the total being around $8.4 million. The parties do not dispute the accuracy of this number which, as the government argues, almost certainly indicates reliance on taking out loans to pay off prior loans. For each of these reported transactions, DiCosola filled out a falsified IRS Form 1099-OID, claiming that the $8.4 million was interest income or a rebate credit, that he had loaned money to the various banks in the amounts that he had, in fact, borrowed. He claimed that these banks had withheld large sums of tax from these loans.[2] He then subtracted the taxes owed on this income, and ultimately claimed a refund of $5.5 million. DiCosola filed a tax return for his wife which was similar in all respects, albeit with smaller numbers. After having his return flagged as frivolous on April 10, 2009, DiCosola spent the next seven months in correspondence with the IRS before ultimately sending another copy of the two fabricated returns to the IRS in mid-September. These two documents, rather than the initial filing of the returns, represent the basis for the indictment and conviction.

         On June 12, 2012, DiCosola was indicted for multiple violations of federal law: two counts of bank fraud, in violation of 18 U.S.C. § 1344; one count of making false statements to a bank, in violation of 18 U.S.C. § 1014; and one count of wire fraud affecting a financial institution, in violation of 18 U.S.C. § 1343, all in connection to the loans obtained from Amcore Bank and Citibank; two counts of filing false statements against the United States, in violation of 18 U.S.C. § 287, in connection with the tax fraud; and two counts of bankruptcy fraud, in violation of 18 U.S.C. § 152(3). DiCosola moved to dismiss one of the claims of bank fraud as duplicative, and moved to sever the bank fraud charges, the bankruptcy fraud charges, and the tax fraud charges. The district court granted these motions. The government chose not to move forward with trial on the bankruptcy-related charges, and following conviction, the government voluntarily dismissed them. This left three charges related to bank fraud set for a jury trial, and two charges related to tax fraud set for a bench trial. After a three-day jury trial and the bench trial, DiCosola was found guilty on all remaining counts, and on September 8, 2016, judgment was entered and DiCosola was sentenced on all five charged counts. He was sentenced to thirty months' imprisonment and two years of supervised release. A restitution order for $822, 088.00 was also ordered paid to CitiMortgage and Harris Bank (a subsidiary of CitiBank and the bank which later purchased Amcore Bank). This appeal followed.


         A. Loan Fraud

         With respect to his loan fraud conviction, DiCosola challenges the district court's denial of his motion for a new trial on multiple grounds relating to the testimony of his accountant, John Cerami. He also raises an unrelated charge that the government did not correct a false statement by a government witness during cross-examination. Napue v. Illinois,360 U.S. 264, 269 (1957). Each of these arguments ...

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