Massachusetts State Rep. Francisco Paulino Charged in $700,000 Pandemic Fraud Case: What Prosecutors Allege
Massachusetts State Rep. Francisco Paulino was arrested Wednesday and charged with allegedly fraudulently obtaining more than $700,000 in COVID-19 unemployment benefits and small-business loans, according to federal prosecutors.
Paulino, who represents the 16th Essex District, covering Lawrence and Methuen, faces an 11-count federal indictment that includes eight counts of wire fraud and three counts of money laundering. Prosecutors allege that the conduct occurred before Paulino was elected to public office.
The case centers on pandemic relief programs created to provide financial assistance to unemployed workers and businesses affected by the COVID-19 pandemic.
What prosecutors allege
According to the indictment, Paulino allegedly used his tax-preparation and mortgage businesses, other people’s identities and intermediaries to obtain pandemic-related funds and move some of the money into personal and business accounts.
One part of the alleged scheme involved Pandemic Unemployment Assistance (PUA), a federal program administered by states during the pandemic.
Federal prosecutors allege that in April 2020, Paulino submitted a PUA application to the Massachusetts Department of Unemployment Assistance in the name of a 77-year-old relative who was allegedly unaware of the application.
The application allegedly falsely stated that the relative had worked for Paulino’s company, Madison Tax LLC, in 2019. Prosecutors say fabricated documents and false weekly certifications were submitted as part of the application.
The unemployment benefits were allegedly directed into a bank account controlled solely by Paulino.
Between April 2020 and September 2021, the Massachusetts unemployment agency allegedly paid more than $44,000 in PUA benefits. Prosecutors allege that the money was subsequently used for real estate expenses, loan payments and transfers to a political campaign account.
The alleged EIDL loan scheme
Prosecutors also accuse Paulino of fraud involving Economic Injury Disaster Loans (EIDL) issued through the U.S. Small Business Administration during the pandemic.
EIDL loans were intended to help eligible businesses deal with economic losses caused by COVID-19. The funds were subject to restrictions on how they could be used.
According to the indictment, Paulino incorporated Jackson Enterprise Inc. as a fast-food restaurant and cafe in November 2019.
Prosecutors allege that the company had no revenue before August 2020, and tax filings reportedly showed $0 in revenue for 2019. Despite that, Paulino allegedly submitted an EIDL application in June 2020 claiming that Jackson Enterprise had generated $426,755 in revenue during the relevant period.
The SBA allegedly approved the application and deposited $136,600 into the company’s bank account.
Prosecutors allege that $18,000 of those funds was used toward the purchase of real estate in Lawrence.
Money allegedly moved through mortgage businesses
The indictment also focuses on money that prosecutors say was transferred from Madison Tax to Madison Mortgage Inc., another business associated with Paulino.
Paulino allegedly received a total of $401,800 through Madison Tax’s EIDL after an SBA loan increase.
In October 2021, prosecutors allege that Paulino transferred $100,000 of the EIDL proceeds to Madison Mortgage and used the money to help finance a $600,000 mortgage for two people purchasing a home in Methuen.
Two months later, prosecutors allege that another $120,000 was transferred from Madison Tax to Madison Mortgage. That money was allegedly used to help finance a $460,000 mortgage for an LLC purchasing property in Lawrence.
According to prosecutors, the alleged misuse involved $220,000 in Madison Tax EIDL funds. They also allege that Paulino profited by charging interest on the mortgages and collecting loan-origination fees.
Prosecutors allege another client’s loan was increased
The indictment describes another alleged transaction involving one of Paulino’s Madison Tax clients.
Prosecutors allege that Paulino helped the client obtain an initial $104,300 EIDL in 2020. He allegedly later requested an increase without the client’s knowledge.
The SBA subsequently approved an additional $243,200, according to the indictment.
Prosecutors allege that Paulino later persuaded the client to lend him $200,000 from the increased funds. That money was allegedly transferred to Paulino’s Madison Tax account and used to help finance another mortgage transaction.
The indictment alleges that Paulino charged 6.25% interest and a $17,000 loan-origination fee on that transaction.
What charges does Francisco Paulino face?
The federal indictment contains 11 counts:
- Eight counts of wire fraud
- Three counts of money laundering
Federal prosecutors say each wire-fraud count carries a potential sentence of up to 20 years in prison, while each money-laundering count carries a potential sentence of up to 10 years. Fines and supervised-release terms may also apply.
However, those are statutory maximums, not an indication of what sentence Paulino would receive if convicted. Any sentence would ultimately be determined by a federal judge under applicable laws and sentencing guidelines.
Paulino was already a state lawmaker when the charges were announced
Paulino represents Massachusetts’ 16th Essex District, which includes Lawrence and Methuen. The Massachusetts Legislature lists him as a member of the House of Representatives.
The federal government says the conduct described in the indictment occurred before Paulino was elected to public office.
His arrest comes less than two weeks after federal authorities arrested Lawrence Mayor Brian DePena in a separate pandemic-relief fraud case. DePena has been accused of obtaining more than $1.5 million in COVID-related small-business loans and using portions of the money for personal and campaign-related purposes.
The two cases are separate, but federal prosecutors have highlighted them as part of a broader effort to investigate alleged fraud involving pandemic relief programs in Massachusetts.
What happens next?
Paulino was scheduled to make an initial appearance in federal court in Boston on Wednesday afternoon following his arrest, according to the U.S. Attorney’s Office.
The case will now proceed through the federal court system, where prosecutors will have to prove the allegations beyond a reasonable doubt.
It is important to distinguish the allegations in the indictment from established facts. The Justice Department explicitly states that the allegations contained in the charging documents are not proof of guilt and that Paulino is presumed innocent unless and until proven guilty in court.
The Bottom Line
Federal prosecutors accuse Massachusetts State Rep. Francisco Paulino of using pandemic unemployment benefits and EIDL loans to obtain more than $700,000, then directing portions of the money toward real estate transactions, mortgage activity, loan payments and other purposes.
The case involves alleged activity from 2020 through 2021, before Paulino entered public office. He now faces eight wire-fraud counts and three money-laundering counts in federal court.
The allegations remain unproven, and the case will ultimately be decided through the federal judicial process.
