In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16‐3497
UNITED STATES OF AMERICA,
Plaintiff‐Appellee,
v.
MICHELE DICOSOLA,
Defendant‐Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:12‐cr‐00446‐1 — Harry D. Leinenweber, Judge.
____________________
ARGUED MAY 24, 2017 — DECIDED AUGUST 14, 2017
____________________
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
G. Scott Thomas, Recession claimed 170,000 small businesses in two years,
1
THE BUSINESS JOURNALS, July 24, 2012.
2 No. 16‐3497
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
No. 16‐3497 3
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
4 No. 16‐3497
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
2 While the motivation behind the theory is not material to this case, the
IRS puts out information for ordinary taxpayers explaining popular tax
fraud techniques. See INTERNAL REVENUE SERVICE, IRS RELEASES THE DIRTY
DOZEN TAX SCAMS FOR 2013, available at
https://www.irs.gov/uac/newsroom/irs‐releases‐the‐dirty‐dozen‐tax‐
scams‐for‐2013. For Form 1099 fraud, it explains:
False Form 1099 Refund Claims
In some cases, individuals have made refund claims based on the
bogus theory that the federal government maintains secret accounts
for U.S. citizens and that taxpayers can gain access to the accounts by
issuing 1099‐OID forms to the IRS. In this ongoing scam, the
perpetrator files a fake information return, such as a Form 1099
Original Issue Discount (OID), to justify a false refund claim on a
corresponding tax return.
Don’t fall prey to people who encourage you to claim deductions or
credits to which you are not entitled or willingly allow others to use
your information to file false returns. If you are a party to such
schemes, you could be liable for financial penalties or even face
criminal prosecution.
No. 16‐3497 5
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.
6 No. 16‐3497
II. DISCUSSION
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 fails
to demonstrate any abuse of discretion by the district court,
and so we affirm the conviction.
DiCosola’s defense to his loan fraud charge was that he
had requested that Cerami prepare new tax returns for prior
years that showed inflated income so that DiCosola could
obtain loans. Cerami allegedly prepared these returns and
signed them, indicating that they were not fraudulent and
capable of being filed with the IRS. DiCosola’s various
grounds for a new trial all relate to the belief that the
government coerced Cerami to testify before the grand jury
that the returns were “hypothetical” (i.e., false). Because
DiCosola claims that the returns were not false, he insists that
the indictment was solely based upon coerced, intentionally
false testimony. By getting Cerami on record in this way,
Cerami’s credibility as a defense witness was ruined.
The government, for its part, never called Cerami as a
witness: he testified solely for the defense. As a result, it
strains credulity to say that there was insufficient evidence to
indict, or that the defendant is entitled to the release of the
grand jury transcripts. United States v. Fountain, 840 F.2d 509,
514 (7th Cir. 1988). Cerami, a cagy witness, presented
No. 16‐3497 7
different glosses on what he did with the defendant’s tax
returns in different contexts. And there is certainly nothing
wrong with preparing “hypothetical” tax returns that
demonstrate differing interpretations of an income situation.
In DiCosola’s case, he filed tax returns demonstrating higher
capital expenditures which would, presumably, allow him to
take depreciation losses on future‐year tax returns. Cerami, in
the “hypothetical” tax returns, would seek to average capital
expenditures, reducing variation but also accelerating income
and requiring DiCosola to pay more up‐front in taxes.
Perhaps, if DiCosola had consistently used the latter method,
he could have legally filed the “hypothetical” income returns.
But he chose not to file them. Instead he used one accounting
method for his actual tax returns and a different accounting
method for the tax returns he provided to the banks to obtain
loans. Whatever Cerami or DiCosola intended when
preparing these documents, the jury was presented with
sufficient evidence to conclude that DiCosola knew they were
not the returns that he filed, and that he presented them to
two banks as if they were.
The Napue claim fares no better. DiCosola argues that the
government suborned perjury when one government witness
made an off‐hand remark on the stand, in response to defense
counsel questioning. While interpreting a loan document, a
loan officer testified that DiCosola received “cash back” from
his CitiBank loan, which was false. But the district court
observed that this unintentional falsehood was quickly
corrected, was immaterial, and was, rather than a knowing
falsehood, a “reasonable” read of the loan document in front
of the witness. Specifically, as noted above, DiCosola used the
proceeds from the CitiBank loan to immediately pay off other
debts: he did not walk out of the building with any “cash
8 No. 16‐3497
back.” Such a harmless error, prompted by defense counsel
and not relied upon by the government, simply does not rise
to the level of malfeasance requiring a new trial.
B. Tax Fraud
DiCosola challenges his tax fraud conviction on the
sufficiency of the evidence. This claim is also without merit.
DiCosola’s appeal rests upon his contention that all the
evidence demonstrates that he honestly believes in what
defense counsel calls the “OID theory.”
Unfortunately, people in desperate circumstances are
susceptible to being sold on outlandish tax theories. However
misled, DiCosola spent much time and money purchasing
books and tapes and attending seminars that sold him a lie. A
leading proponent of this theory, contacted by Mr. DiCosola
after his arrest to testify in support of his tax theory,
unconscionably took the opportunity to simply sell him
another video.
Deceptive or just convoluted, this tedious sidetrack
certainly does not mean that no rational trier of fact—in this
case, the district judge—could find that the defendant knew
that his letters to the IRS demanding a $5.5 million refund
were fraudulent. United States v. Dessart, 823 F.3d 395, 403 (7th
Cir. 2016). As the district court noted, “there was no specific
evidence as to [DiCosola’s] actual subjective intent or his
knowledge[ in the tax fraud case], so we have to go on
circumstantial evidence which has been submitted by the
government and through the defense through testimony of
Mrs. DiCosola.” There was ample circumstantial evidence
before the district court to sustain Michele DiCosola’s tax
fraud convictions.
No. 16‐3497 9
DiCosola had the motive to defraud the IRS, as he was in
dire financial straits. He had used an accountant to file his
prior years’ tax returns and suddenly decided to self‐file in
2009. His 2009 tax return was wildly different from his
legitimately‐filed prior tax returns. Further, DiCosola was
told by the IRS that his OID theory was frivolous, and yet he
persisted. One might interpret his repeat calls to the IRS as a
sign of earnestness, but one might also reasonably interpret it
as an attempt to create an exculpatory record, expecting
inevitable trouble. Taken together, all of this circumstantial
evidence is more than enough to allow the district judge to
find DiCosola guilty of tax fraud.
C. Restitution Order
Finally, defendant objects to the district court order of
restitution to Harris Bank (previously Amcore Bank) in the
amount of $559,088. Specifically, he argues that the
government proffered insufficient evidence for the loss
amount to Amcore Bank, both because the sole evidence at
sentencing was the presentence report and accompanying
testimony of a parole officer, and because the auction of his
property resulted in no reduction of restitution obligations.
There is no dispute that the district court had authority to
order restitution. Rather, DiCosola claims that the court
abused its discretion by awarding an amount higher than
supported by the evidence. See United States v. Scalzo, 764 F.3d
739, 744 (7th Cir. 2014). We find no abuse of discretion here,
and affirm the award.
There is no per se rule that a restitution award need be
supported by any particular form of evidence. The testimony
of the parole officer was itself sufficient to sustain a restitution
award. The officer specifically interviewed an assistant vice
10 No. 16‐3497
president at Harris Bank who, in the officer’s view, credibly
reported the bank’s losses attributable to defendant’s fraud.
Further, the probation officer interviewed the auctioneer who
reported that the sale of defendant’s property returned
“nominal” proceeds. The probation officer, in the district
court’s view, provided reliable information sufficient to
sustain a restitution award in the amount of $559,088. Rather
than provide countervailing evidence, however, the
defendant simply objected to the form of the evidence
presented by the government, contending that sworn
affidavits or other documentary evidence was necessary. Not
so. The defendant at this point had the burden of presenting
his own side of the story, with receipts or assessments of the
value of his property before auction. Id. at 745. Presenting
none, he effectively conceded the valuation by the
government.
There is certainly an unsettling ambiguity in the testimony
of the parole officer relating to his interview of the auctioneer.
The officer testified that the auctioneer stated that sale of
defendant’s property returned “nominal sales proceeds.”
Certainly, any return in value for that auction should have
reduced defendant’s monetary obligation to the bank which
collected the proceeds. Yet the bank stated to the parole officer
that the auction proceeds did not reduce his obligations, and
the auctioneer was presented with this information before he
provided an explanation for why the return was so low.3
What is left unsaid, presumably, is that running an auction
3 Specifically, that the inventory was missing parts, that it was “custom”
and so not suited for resale, and that the storage unit containing
defendant’s property was broken into, with much property looted.
No. 16‐3497 11
does incur costs, so that the “nominal” proceeds were equal
to or less than the overhead costs.
None of this is in the record, but the alternative is that the
bank representative, the auctioneer, or the parole officer were
inaccurate in their assessments. This might be the case, but the
defendant ignored the opportunity to seek out and present
evidence of this.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.