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Case Number: 5:21-cr-00417
Judge: Edward J. Davila
Court: United States District Court for the Northern District of California (Santa Clara County)
Plaintiff's Attorney: United States Attorney’s Office San Jose
Description: San Jose, California criminal defense lawyers represented Defendant charged with conspiracy to commit bank fraud and for his failure to pay over more than $2 million in employment taxes.
Kishore Kethineni, the CEO of multiple software development and IT services companies in the Bay Area, pleaded guilty to the charges on February 21, 2023. In pleading guilty, Kethineni admitted that he conspired with his two brothers to engage in a scheme in which they fraudulently obtained over $3.1 million in loans under the Paycheck Protection Program (PPP).
The PPP is a COVID-19 pandemic relief program administered by the Small Business Administration (SBA) that provided forgivable loans through third-party lenders to small businesses for payroll and certain other expenses. Kethineni was the sole owner and CEO of four of the companies involved in the scheme: BiteGate, Inc., Dinenamics, Inc., Neelinfo, Inc., and TechPMC, Inc. His brothers were the owners of the three other companies involved: Boxstertech, Inc., Hiretechforce, Inc., and TechGlobalSystems, Inc. From April 2020 through May 2021, Kethineni and his brothers submitted multiple PPP loan applications on behalf of their various respective companies, in which they made fraudulent representations and provided falsified payroll data and records to obtain loans and loan forgiveness under the program.
Collectively, Kethineni and his brothers submitted at least twelve PPP loan applications on behalf of their seven companies. The applications sometimes were virtually identical. The applications resulted in the approval and funding of nine loans totaling over $3.1 million in PPP funds. Upon receipt of the PPP loan funds, Kethineni redirected significant amounts to himself and his family members instead of using the funds for payroll and other authorized business expenses under the program.
Kethineni also admitted to willfully failing to account for and pay over employment taxes that his company, Neelinfo, Inc., had withheld from the pay of its employees, incurring an employment tax liability of over $2 million over the course of five years (from 2014 through 2018). Kethineni acknowledged that he used a payroll service company to process Neelinfo’s employee payroll and track its employment tax obligations. Every quarter, the payroll service company provided Neelinfo with a prepared Form 941 that reflected the taxes withheld from Neelinfo’s employees, which Neelinfo was required to pay over to the IRS. Despite receiving these prepared tax forms each quarter, Kethineni did not file them with the IRS, nor did he pay over any employment taxes on behalf of Neelinfo, while still causing Neelinfo to make thousands of dollars in other expenditures. At the end of each year, the payroll service also provided Neelinfo with its employees’ Forms W-2, which were used by the employees to file their personal income taxes. However, due to Kethineni’s failure to file any employment tax forms or pay over Neelinfo’s employment taxes as required, some of Neelinfo’s employees were subject to audits and inspection by the IRS after filing income tax returns based on income that Neelinfo never reported.
On February 15, 2023, Kethineni was charged by Superseding Information with one count of failure to pay over employment tax in violation of 26 U.S.C. § 7202 and one count of conspiracy to commit bank fraud in violation of 18 U.S.C. § 1349. Kethineni pleaded guilty to both counts.
In addition to the prison term, Judge Davila also ordered Kethineni to serve two years of supervised release—to begin after the prison term—to pay $3,295,514.25 in restitution, and to pay a $15,000 fine. The court also ordered entry of a money forfeiture in the amount of $3,186,315.00.
Assistant U.S. Attorney Annie Hsieh is prosecuting the case with the assistance of Maryam Beros and Lance Libatique. The prosecution is the result of an investigation by IRS-CI and the FBI.
26:7202 - Willful Failure to Pay Over Employment Tax
18:1349 - Conspiracy to Commit Bank Fraud
Outcome: Defendant was sentenced to 24 months BOP custody as to each counts 1&2 to be served concurrently; 2 years supervised release as to each count 1&2 to be served concurrently; $3,295,514.25 in restitution, $15,000.00 in fine, $200.00 special assessment