Massachusetts state Rep. Francisco Paulino, a Methuen Democrat, pled not guilty in federal court after he was indicted over charges he fraudulently obtained more than $700,000 in COVID-19 relief funds.
Paulino was charged with eight counts of wire fraud and three counts of unlawful-monetary transactions, also known as money laundering, in federal court. Each charge carries 10 to 20 years in prison if convicted.
The charges stem from a federal investigation into Paulino, who represents the 16th Essex District, over allegedly misusing COVID relief funds.
He was released after his arraignment with conditions. He can not travel outside of Massachusetts and New Hampshire, and can only travel to Washington D.C. where his lawyer is located with permission.
The judge also ordered that Paulino temporarily shut down his businesses, including the shut-down Madison Mortgage and the still-operating Madison Tax. Both of these businesses were named in the federal investigation.
Federal prosecutors addressed the charges in a press conference Wednesday.
“It is alleged that Paulino used some of the money for his own personal use, including real estate expenses, loan payments and transfers to his campaign account,” said Leah B. Foley, the U.S. attorney for the District of Massachusetts.
Foley added that Paulino flipped other funds around that he lent to other individuals “at higher interest rates than the pandemic loan rate, basically making more money for himself at the expense of others.”
The scheme included filing a false unemployment claim in a 77-year-old relative’s name, falsely claiming that the relative worked for Paulino’s business, Madison Tax, LLC.
“From April of 2020 until September of 2021, Paulino filed false weekly certifications with the Massachusetts Department of Unemployment Assurance, all in the relative’s name,” Foley said. “These unemployment benefits that Paulino fraudulently obtained for himself totaled over $44,000.”
Foley added that Paulino allegedly used the money to pay for real estate expenses, loan payments and transfers into his political campaign account, a campaign he won in 2023, two years after the crimes allegedly occurred.
According to the indictment, Paulino also committed fraud in connection with three Economic Injury Disaster Loans, commonly known as EIDLs.
During the pandemic, the U.S. Small Business Administration offered EIDLs to eligible small businesses experiencing substantial financial disruptions due to the pandemic. A business was only permitted to use these funds as working capital to alleviate economic injury caused by COVID.
According to the indictment, Paulino incorporated a business called Jackson Enterprise, Inc. as a “fast food restaurant cafe” in Nov. 2019. But Jackson Enterprise allegedly had no revenue prior to August 2020.
Paulino allegedly submitted an EIDL application to the SBA in June 2020 falsely representing that Jackson Enterprise’s revenues for the 12 months ending Jan. 31, 2020 were $426,755.
The SBA approved the loan and deposited $136,600 into Jackson Enterprise’s bank account in July 2020. Paulino allegedly used $18,000 of the funds toward the purchase of real estate in Lawrence.
“It is further alleged that Paulino obtained an EIDL of over $109,000 from Madison Tax in May of 2020 and later requested an increase to the Madison Tax EIDL,” Foley said. “In July of 2021, the SBA approved an increase of over $290,000 to Madison Tax— Madison Tax’s EIDL, and Paulino falsely certified that he would use that $290,000 as working capital for Madison Tax.”
Foley adds that Paulino allegedly loaned most of that money to other individuals through another of his businesses, Madison Mortgage, charging interest rates significantly higher than the interest rate he was getting for the Madison Tax loan.
Prosecutors allege that a laundry business owner in Lawrence who spoke limited English trusted Paulino with his taxes, personal information and online banking. The indictment accuses Paulino of receiving a government loan for the client without him knowing — and, later, Paulino asked him to lend $200,000. The money was then allegedly transferred to Madison Tax and put toward a property mortgage in Lawrence.
As a condition of release, he cannot access or contact any of his former client’s records or bank accounts, some of which he had full access to.
Foley said the interest rate Paulino charged on the mortgage loan was higher than the interest rate from the EIDL.
Paulino is being accused of overstating the revenue of another local Lawrence business, a donut shop operator, to obtain an Economic Injury Disaster Loan, commonly known as EIDL. The indictment alleges that $18,000 from that loan was also used by Paulino for a real estate purchase in Lawrence.
The EIDL funds obtained through Madison Tax were transferred to another of Paulino’s companies, Madison Mortgage, and used to help pay mortgages connected to property purchases in Methuen and Lawrence.
“In total, it is alleged that Paulino fraudulently obtained over $700,000 in federal benefits that he was not entitled to and used the funds to line his own pockets,” Foley said. “The conduct alleged by the Lawrence mayor and the district state representative is appalling.”
The charges of wire fraud each provide for a sentence of up to 20 years in prison while each money laundering charge each provides a sentence of up to 10 years in prison.
Paulino will return to court Oct. 10 for a status hearing.
