Massachusetts State Rep. Francisco Paulino (Credit: Facebook)

The FBI arrested Massachusetts State Rep. Francisco Paulino (D-Methuen) on Wednesday morning after a federal grand jury indicted the second-term Democrat on 11 counts of wire fraud and money laundering.

Prosecutors say Paulino treated COVID relief programs like an ATM, fraudulently obtaining more than $700,000 in pandemic unemployment benefits and Small Business Administration disaster loans.

Paulino represents the 16th Essex District, which includes Methuen and Lawrence, the same Merrimack Valley corridor that just saw Lawrence Mayor Brian DePeña arrested two weeks ago on separate $1.5 million-plus COVID loan fraud and money-laundering charges.

Both men are Dominican-born Democrats. Both, prosecutors allege, used the pandemic as their “personal cash cows.”

The 24-page indictment alleges Paulino ran the operation from roughly April 2020 through at least December 2021 — the same period he was campaigning for and then winning the state House seat he still holds. He used his Lawrence tax-preparation firm, Madison Tax LLC, as the vehicle.

Highlights from the charging documents:

In April 2020 he filed a pandemic unemployment assistance claim in the name of a 77-year-old relative without her knowledge, falsely claiming she was self-employed.

More than $39,000–$44,000 in benefits went straight into a bank account he controlled. He kept filing false weekly certifications into September 2021 and submitted fabricated documents, including purported IRS paperwork, when the state asked questions.

He obtained or modified Economic Injury Disaster Loans for his own businesses (including a Heav’nly Donuts location) and for at least one client who spoke limited English and trusted Paulino with tax records and online banking access.

In one case he allegedly increased a client’s loan without the client’s knowledge, then later asked that same client for a $200,000 loan.

Funds were funneled through intermediaries into Paulino’s personal and business accounts and used for personal expenses, real estate, loan payments, and transfers into his campaign account.

Prosecutors also say he turned around and lent some of the cheap government money to others at higher interest rates, making a profit off the taxpayers’ dime.

Paulino faces eight counts of aiding and abetting wire fraud and three counts of aiding and abetting money laundering. He was taken into custody outside a Lawrence apartment complex shortly after sunrise and is scheduled for arraignment in Boston federal court.

U.S. Attorney Leah Foley called the conduct “appalling.”

U.S. Attorney Leah Foley: “This morning, we arrested Massachusetts State Representative Francisco Paulino, who represents the 16th Essex District, which includes the cities of Lawrence and Methuen, for pandemic unemployment insurance fraud, pandemic loan fraud, and money laundering.

He is charged in an 11-count indictment that was unsealed today. A grand jury in Boston also returned an 11-count indictment charging the sitting mayor of Lawrence, Brian DePina, with pandemic loan fraud and money laundering.

As many of you know, Mayor DePina was arrested last week on a criminal complaint. He is alleged to have stolen approximately $1.5 million in public taxpayer money—money he used to fund his mayoral campaign, pay his personal tax liabilities, and pay off personal loans. The date for his arraignment on the indicted charges has yet to be set.

According to the Paulino indictment, Mr. Paulino devised a scheme to fraudulently obtain more than $700,000 in federal pandemic-related relief funds. 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.

Other money he flipped around and lent to other individuals at higher interest rates than the pandemic loan rate, basically making more money for himself at the expense of others.

Prior to being elected to a seat in the Massachusetts House of Representatives in November of 2021, it is alleged that Paulino ran several businesses, including Madison Tax in Lawrence. Madison Tax provided tax preparation and business planning services to small businesses.

Paulino’s alleged fraud began in April of 2020, when he allegedly filed an online application for Pandemic Unemployment Assistance benefits—not for himself, but rather in the name of an unwitting 77-year-old relative. The application falsely claimed that the relative had worked for Madison Tax in 2019.

Once the unemployment claim was approved based on the false information Paulino submitted, funds were deposited into an account that Paulino controlled. From April of 2020 until September of 2021, Paulino filed false weekly certifications with the Massachusetts Department of Unemployment Assistance, all in the relative’s name.

These unemployment benefits that Paulino fraudulently obtained for himself totaled over $44,000.

Paulino also allegedly filed fraudulent paperwork with the Small Business Administration in order to obtain Economic Injury Disaster Loans, commonly referred to as EIDLs. Some of these applications were for businesses Paulino owned, and others were filed in the name of a business owned by a client of Madison Tax.

It is alleged that Paulino used the fraudulently obtained money for his own benefit.

First, Paulino allegedly filed an application for an EIDL in which he falsely represented that the revenues of one of his businesses, Jackson Enterprise, were over $426,000 during the time frame of January of 2019 to January of 2020. The problem is that the business wasn’t in operation until August of 2020.

The SBA approved the loan based on the alleged false information and sent $136,000 to an account controlled by Paulino.

It is further alleged that Paulino obtained an EIDL of over $109,000 for Madison Tax in May of 2020 and later requested an increase to the Madison Tax EIDL.

In July of 2021, the SBA approved an increase of over $290,000 to Madison Tax’s EIDL, and Paulino falsely certified that he would use that $290,000 as working capital for Madison Tax.

Instead, it is alleged that he 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.

It is further alleged that Paulino took advantage of one of his tax clients by misrepresenting the terms and conditions for obtaining EIDL loans.

As alleged in the indictment, based on applications Paulino filed, the SBA awarded over $345,000 in EIDL loans to his client’s business. Paulino then had that client forward $200,000 of those funds to him, which he used to partially fund a $680,000 mortgage for an individual for the purchase of real property.

The interest rate Paulino charged on the mortgage loan was higher than the interest rate from the EIDL.

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.

The conduct alleged by the Lawrence mayor and the district state representative is appalling.

Everyone listening today knows how difficult it was for Americans during the pandemic and how challenging it was for businesses. The money these two individuals allegedly scammed was meant for hardworking Americans and struggling business owners, not for two greedy individuals who lied and stole for their own personal benefit.

I think it should be clear now that we are taking fraud seriously in Massachusetts. From SNAP and housing fraud to voter fraud to pandemic relief fraud, we are dialed in and laser-focused on rooting out every bit we find.

We will continue to hold fraudsters accountable until the stealing stops.

It is never a proud moment when we arrest a public official, but we will continue to do it until the message is received.

No one is above the law, and no one gets a pass.

Now, I’m going to turn things over to the FBI.”

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