Jury to resume deliberations Wednesday in COVID fraud case against former KS lawmaker

A jury won’t decide until Wednesday at the earliest whether to convict former Kansas legislator Michael Capps on 18 federal COVID fraud charges.

Deliberations began after closing arguments concluded at 2:20 p.m. Monday, after a four-day trial at the U.S. Courthouse in Wichita. Judge Eric Melgren said early Monday that he was hopeful the jury would return a verdict as early as Monday evening, but by 5:30 p.m. no decision had been reached. After a break Tuesday, the jury will resume discussions on Wednesday.

Capps is accused of 18 felony federal crimes related to COVID-19 relief aid, including false statements, bank fraud, wire fraud and money laundering. Federal prosecutors allege he overstated business revenues, payroll and the number of employees to maximize the COVID cash going to his businesses.

The U.S. Attorney’s Office accuses Capps of defrauding federally insured Emprise Bank, U.S. Small Business Association and Kansas Department of Commerce out of more than $450,000 in coronavirus pandemic federal relief aid in 2020, when he was a member of the Kansas House of Representatives. The programs included the Paycheck Protection Program, Economic Injury Disaster Loan Program and Working Capital Grant program.

The U.S. Attorney’s Office argued Monday that Capps ran into financial trouble in 2018 and 2019 when his business expenses far exceeded business income. To keep them afloat, Capps spent about $250,000 of his $300,000 inheritance from his mother.

When the COVID-19 pandemic hit, and federal and state agencies rolled out trillions of dollars in pandemic spending, Capps saw an opportunity to recover that money — by submitting false information and “grossly exaggerated” revenues, payroll and employee numbers at his businesses to maximize federal awards to his companies and a nonprofit charity under his control, Assistant U.S. Attorney Alan Metzger said.

After getting the COVID cash, Capps shifted money from his charity to at least one of his private companies and from his private companies to his personal investment accounts, including a personal account created for high-risk stock trading, according to records and testimony during the trial.

The final two days of the trial were dominated by the testimony of Capps, who said Monday that he submitted incorrect information on multiple 2020 loan and grant programs based on instructions to do so by an employee at Emprise Bank.

Capps testified that he submitted projected 2020 revenue, payroll and employee numbers where the applications asked for actual revenue, payroll and employee numbers for the year 2019. He signed certifications saying the information he submitted in the applications was true and correct.

The FBI began investigating Capps after an agent read a December 2020 Wichita Eagle investigation that found Capps reported having employees who didn’t exist, inflated payroll expenses and overstated revenues in the year leading up to the pandemic for Midwest Business Group LLC, which is co-owned by former Wichita City Council member James Clendenin and does business as VR Business Brokers of the Heartland; Krivacy LLC, a cyber security firm Capps owns; and Fourth and Long Foundation, a 501(c)(3) nonprofit he founded as a sports charity.

Capps claimed in applications for the aid that in 2019 Midwest Business Group LLC had eight employees and an average monthly payroll of $32,715 and gross revenues of $252,738; Krivacy LLC had 18 employees and gross revenue of $728,520; and Fourth and Long had 12 employees with gross revenue of $285,000, according to a court filing by the U.S. Attorney’s Office.

That information was not true for the year 2019 at that time he submitted the applications, Capps acknowledged Monday.

He said the information provided for Midwest Business Group came from projections for 2020, not actual information from 2019; the revenue numbers submitted for Krivacy overstated the company’s revenue because he misplaced a decimal point; and the information for Fourth and Long included employees and revenues for a separate entity run by Joshua Blick that puts on the annual Automobilia Moonlight Car Show and Street Party.

Among the eight employees at Midwest Business Group he claimed in the applications were Clendenin’s daughters, ages 10 and 14. Capps said Monday that the two girls often attended homeschool at the company’s downtown Wichita office, where they regularly cleaned up and filed some paperwork for the company.

Clendenin and his daughters were the only individuals to receive checks from Midwest Business Group in 2019, a review of bank records presented at trial showed. The payments to Clendenin’s daughters were usually $25 to $50. At least two checks to the girls bounced.

The U.S. Attorney’s Office also presented evidence Monday showing Capps had testified in a civil lawsuit that he planned to dissolve Krivacy in August 2020, the same month he applied for and was awarded a $20,000 grant from the Kansas Department of Commerce.