Managers and the Legal Environment 7th Edition by David Madsen, Constance Bagley

Exercise 3

Joseph Russo and Everett James Garner entered into an agreement to establish a building materials manufacturing business, Panel Building Systems, Inc. (PBS). To obtain capital to fund the development of the new company, Russo applied for a $630,000 loan from the U.S. Small Business Administration (SBA). On the loan application, Russo stated that he was the president and 100% owner of PBS. PBS subsequently defaulted on the loan, and the SBA suffered losses of about $474,000. During the SBA's investigation of the default, it was revealed that the actual president of PBS was Garner, not Russo, and that Garner had a poor financial record. Russo later admitted that he knew the information supplied on the loan application was false and that the false information was supplied in order to secure a loan from the SBA. Russo was sued for knowingly and willfully making a false statement to the federal government under 18 U.S.C. § 1001, which requires willful intent to deceive.
Russo claimed that although he knew the information supplied on the loan application was false, he lacked willful intent to deceive the federal government because he always intended to be president and CEO of PBS. Russo also argued that he thought Garner was a wealthy man and that he did not know Garner had a poor financial record. Did Russo have willful intent to deceive the federal government? [United States v. Russo, 202 F.3d 283 (10th Cir. 2000).]