Department of Justice - PPP loan fraud small businesses

Paycheck Protection Program (PPP) loans have aided more than 5 million small business owners, providing a much needed lifeline during the Coronavirus outbreak crisis. The overwhelming majority of business owners are legitimate and will use the money as intended to retain employees and stay operational.

But the PPP program has attracted a few rotten apples. And you won’t believe how rotten they are.

To date, the Justice Department has filed 30 PPP fraud cases. Defendants are charged with bilking taxpayers out of tens of millions of dollars. Luckily, the Feds have recovered a large part of the loan proceeds already.

And what’s been recovered tells a wild tale.

Feds have seized a 2020 Lamborghini Huracan sports car, a Rolex Presidential watch, a 5.73-carat diamond ring, and a diamond bracelet — all purchased with PPP loan money. Other loot includes a Tesla, a 26-foot Pavati Wake Boat, two Rolls-Royces, a Lamborghini Urus, and a Ford F-350 pickup truck.

Authorities also seized cash hoards, froze bank accounts, and recovered other assets.

Some defendants blew taxpayer money on wild spending sprees, including Las Vegas gambling, visits to strip clubs, and day-trading. In one case, a married couple was apprehended at JFK Airport purportedly attempting to flee the country after submitting 18 fraudulent applications.

Every government program attracts a small number of grifters and criminals. And the DOJ has made it a priority to root them out. On March 16, 2020, Attorney General William Barr directed all 94 U.S. Attorneys’ Offices to prioritize investigating and prosecuting PPP loan fraud cases.

PPP Loan Program Results

On March 27, 2020 Congress passed and President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act — or CARES Act. It authorized the Paycheck Protection Program. PPP is a low-interest, forgivable loan program designed to help small businesses and self-employed individuals.

In an unusual example of government speed, the Small Business Administration started accepting loan applications just a week later on April 3, 2020. Through July 24, the SBA has approved 5,005,261 loans, constituting $519,505,881,228, demonstrating its success.

The majority of the funds are going to help the nation’s 31 million small businesses, there’s no doubt about it. The number of fraud prosecutions is very small by comparison.

30 PPP Fraud Cases – So Far

Could these prosecutions involve nothing more than paperwork mistakes? They do not appear to be honest mistakes. All appear to involve egregious circumstances — assuming the government ultimately proves the facts. Some defendants actually were under indictment for other charges at the time of applying for loans. Others hid their criminal past.

Here’s a rundown of the 30 PPP loan fraud cases to date with some of the lurid details alleged:

Two Men, Identity Theft and a Conspiracy (Rhode Island – May 5)

  • David A. Staveley, aka Kurt D. Sanborn, and David Butziger were charged with conspiring to seek over $530,000 in PPP money. It’s alleged they falsely claimed to have dozens of employees at 4 different businesses, including a restaurant neither owned. They allegedly discussed their fraud in email and one assumed the identity of his own brother. Special Agent in Charge Joseph R. Bonavolonta of the FBI’s Boston Field Office said in a statement, “Thankfully we were able to stop them before taxpayers were defrauded.”

Texas Engineer (Texas – May 13)

  • Shashank Rai, an engineer from Beaumont, is charged with multiple counts of fraud and false statements to the SBA for seeking more than $10 million in PPP funds. He allegedly claimed to have 250 employees when there is no record of any in his business, Rai Family LLC. Court documents allege that handwritten notes recovered from his trash describe how he planned to use $3 million of the money for personal investments.

Reality TV Personality (Georgia – May 13)

  • “Love & Hip Hop: Atlanta” star Maurice Fayne was indicted on fraud charges over a $3,725,500 PPP loan application for his company, Flame Trucking. Fayne allegedly claimed he had 107 employees and submitted forged bank statements. It’s alleged he then blew the money on a Rolex Presidential watch, a 5.73 carat diamond ring and other jewelry. He also allegedly used the money to pay $50,000 for restitution in a previous fraud case, $40,000 in back child support, $139,000 to lease a Rolls Royce Wraith — and $230,000 to associates who helped him run a Ponzi scheme. When arrested, he had almost $80,000 in cash at his home and $9,400 in his pocket, authorities claim.

East Texas Man and the Online Name Generator (Texas – May 19)

  • Samuel Yates of Maud, Texas is charged with fraudulently applying for $5 million with two different lenders. He claimed to have 400 employees, but actually had zero. The complaint claims Yates used a name generator on the Internet to create names of fake employees. He also allegedly submitted forged tax documents.

Manhattan Businessman (New York – May 21)

  • Muge Ma, a/k/a “Hummer Mars,” a Chinese national residing in Manhattan, was arrested on charges of trying to obtain over $20 million in PPP and EIDL money. Ma is alleged to have falsely represented to the SBA and five financial institutions that his companies had hundreds of employees when he was the only employee. He also allegedly was involved in a scheme claiming to represent the New York State Government in procuring COVID-19 test kits.

Hollywood Film Producer (California – May 22)

  • William Sadleir, the ousted head of Aviron Pictures, was charged with wire and bank fraud in connection with a $1.7 million PPP loan. He allegedly used some of the money to pay off $80,000 in personal credit cards and a $40,000 car loan. Sadleir was Executive Producer on films like Serenity, starring Matthew McConaughey. In an unrelated matter the SEC charged Sadleir with allegedly defrauding investors of $13.8 million through Aviron.

Lyft Software Engineer (Washington – May 22)

  • Baoke Zhang, a software engineer at ride share company Lyft, is charged with wire and bank fraud. He allegedly created fake technology companies to obtain $1.5 million in funds. U.S. Attorney Brian T. Moran said in a statement, “I am pleased that the systems designed to detect and deny fraudulent payments caught his scheme before federal funds went out the door.”

Man on Parole (Virginia – May 29)

  • Joseph Cherry II of Virginia was indicted on 10 counts of COVID fraud and faces 10 to 30 years of prison time on each count. Cherry was on supervised release in an unrelated federal case when he applied to the SBA program. It is alleged he got over $190,000 in proceeds and managed to withdraw cash or cashier’s checks for $140,000. “Providing false statements to gain access to SBA’s programs will be aggressively investigated by our office,” said Hannibal Ware, Inspector General of the U.S. Small Business Administration, in a statement.

Walmart Project Manager (Oklahoma – June 4)

  • Benjamin Hayford is charged with fraud for seeking about $4.4 million in PPP financing. He allegedly certified that his business was operating as of February 15, 2020 (a requirement of the law) and had 247 employees. Prosecutors say a search of his email account showed he didn’t even set up a company until a few days before applying in April. At the time of his arrest Hayford was a Project Manager for Walmart. The retail giant suspended him and stated the charges were unrelated to Walmart.

Auto Repair Shop Owner (California – June 5)

  • Geoffrey M. Palermo of Novato faces charges of wire fraud and making false statements. The former manager of the San Francisco Hilton allegedly embezzled from the hotel in a kickback scheme going back to 2013. After leaving the hotel he opened GMP Cars, an auto repair shop. In April he allegedly obtained a PPP loan of $1.7 million by falsely certifying that GMP Cars had employees for whom it paid salaries and payroll taxes. In fact, according to the criminal complaint, Palermo used company funds for lavish personal expenses including a Ferrari racing car, leaving the business in financial distress.

IT Company Business Owner (Illinois – June 16)

  • Rahul Shah of Evanston is charged with bank fraud and making false statements to a financial institution. He allegedly applied for $441,000 under the Federal Paycheck Protection program for several companies. The allegations say he submitted fake IRS documentation. Several individuals he allegedly submitted payroll documentation for said they never worked for his company, per investigators.

Austin High Roller (Texas – June 18)

  • Michael George McQuarn, 51, of Austin, is charged with with fraudulently receiving over $2 million in SBA loans for two fictitious companies, Vantastic Voyages, LLC and Happy Days Movers, LLC. McQuarn allegedly used the money for personal purposes including buying a 26-foot Pavati Wake Boat and a Rolls Royce.

IT Services Company Owner (Massachusetts – June 22)

  • Elijah Majak Buoi, president of Sosuda Tech LLC, is charged with fraudulently applying for over $13 million in PPP aid. Buoi allegedly misrepresented how many employees he had and that the United States was their primary residence (required). He ultimately received over $2 million but the government seized $1.98 million from business bank accounts.

Wedding Planner (Texas – June 23)

  • This owner of a wedding planning company is charged with submitting two PPP applications, and claiming to have 120 employees when he actually had none. Fahad Shah got $1.5 million in funds. He allegedly used the money to buy a Tesla car, make personal investments and make his home mortgage payments.

Married Couple Attempting to Flee (Virginia – June 24)

  • The FBI apprehended Monica Jaworska and her husband Tarik Jaafar at JFK Airport allegedly attempting to flee to Poland. The paid are charged with submitting 18 fraudulent Paycheck Protection applications with false payroll tax returns, and receiving $1.4 million in funds. The Feds managed to freeze most of the funds but not before the couple allegedly withdrew $30,000 in cash.

Funeral Director (Texas – June 24)

  • Jase DePaul Gautreaux aka Jase Dixon, a funeral director in Houston, is charged with seeking $13 million in funds and ultimately receiving over $1.6 million. The criminal complaint charges him with false statements to a financial institution, bank fraud and engaging in unlawful monetary transactions. He allegedly submitted applications on behalf of a business that did not exist and for businesses he did not own.

Owner of Private Investigation Firm (Ohio – June 24)

  • Nadine Consuelo Jackson is charged with bank fraud and other charges for seeking forgivable loans in the amount of $1.3 million, $1.2 million and another $46,000 in Economic Injury Disaster funding. She allegedly claimed to have 73 employees at her Dayton private investigation business. Three people she allegedly claimed as employees told investigators they never heard of her company. The bank recalled one loan and the Government seized funds for the other two.

Ophthalmologist Already Under Indictment (New York – June 24)

  • Apparently one fraud isn’t enough for some people. Meet Goyal, MD, an ophthalmologist in Rye, New York, was under indictment for healthcare fraud. That didn’t stop him from allegedly applying for two PPP loans using different business names. He also allegedly lied certifying he had no pending indictments. Acting U.S. Attorney Audrey Strauss said, “Goyal allegedly looted over $630,000 in federal funds earmarked for legitimate small businesses in dire financial straits.”

Seattle Doctor (Washington – June 30)

  • Dr. Eric R. Shibley is charged with one count of wire fraud and one count of bank fraud. The complaint alleges he applied several times to get aid totaling $3 million, in the names of businesses with no actual operations. He allegedly lied about his criminal past, and submitted fake tax documents including names of people who did not work for the businesses.

Man Under Indictment (Wisconsin – July 8)

  • Ahmad Kanan, formerly of Madison, is charged with wire fraud and money laundering. He allegedly applied for two loans totaling $119,560 acting as owner of Altin Labs, Inc. The indictment alleges Kanan was under federal indictment on an unrelated matter at the time. He then allegedly transferred $47,000 to his personal checking account.

Trucking Company Owner (Utah – July 8)

  • Hubert Ivan Ugarte of Draper, with the assistance of Lisa Bradshaw Rowberry of Provo are charged with fraudulently obtaining a PPP loan of $210,000. He allegedly lied about not being under criminal charges — he in fact was under indictment for a bribery scheme. After two banks declined, Rowberry allegedly said she would help him re-apply through a friend. Ultimately Ugarte received funds from Transportation Alliance Bank. Ugarte allegedly used funds for past due truck payments to Kenworth instead of required payroll.

Medical Company Owner (Florida – July 10)

  • Carlos Belone is charged with wire fraud and other charges in connection with several fraudulent PPP applications. He allegedly got $22,000 which he then deposited partially into a personal account and partially gave to another company in furtherance of a $5.6 million Medicare kickback scheme.

Construction Company Owner (Washington D.C. – July 13)

  • Oludamilare Olugbuyi is charged with fraudulently obtaining two PPP loans totaling more than $400,000. Allegedly he submitted fake IRS 1099 Forms containing worker social security numbers that were invalid. The complaint claims he submitted a tax return reporting $175,565 income for tax year 2019. However, on April 14, 2020, Olugbuyi allegedly filed a 1040 “non-filer return” reporting $1 in income for 2019 which qualified him to receive a $1,200 economic impact payment.

The Cryptocurrency Investor (Texas – July 14)

  • Joshua Thomas Argires of Houston was arrested on various fraud charges. Argires allegedly filed two fraudulent applications seeking $1.1 million in forgivable funding. One was on behalf of a company called Texas Barbecue and the other called Houston Landscaping. Argires allegedly invested some of the proceeds in a cryptocurrency account and withdrew other funds via ATM transactions.

The Vegas High Roller (California – July 16)

  • It’s easy to take risks on day trading and gambling when you’re using taxpayer money. Andrew Marnell of Los Angeles is charged with bank fraud. He allegedly used aliases to obtain $8.5 million in aid using fake tax filings and falsified records of payroll costs. He allegedly blew through about $200,000 in Las Vegas casinos, where he was caught on surveillance cameras at a Bellagio blackjack table. Authorities also claim he lost $500,000 on risky stock market trades. Wells Fargo previously fired him for embezzlement, according to news reports.

Handmade Entrepreneur (Arkansas – July 16)

  • Ganell Tubbs, the entrepreneur owner of Little Piglet Soap Company and Suga Girl Customs, an Etsy shop, is charged with fraudulently obtaining nearly $2 million in PPP loans. Days later she paid $8,000 on her student loan and then went on a spending spree at Sephora and other retailers, it is alleged.

Ex-Microsoft Executive (Washington – July 23)

  • Mohan Mukand, who used to work for Microsoft and Amazon according to his LinkedIn profile, is charged with submitting 8 PPP applications on behalf of six companies. According to the U.S. Attorneys office, the companies didn’t exist or didn’t have the employees he claimed. Authorities allege he bought a company on the Internet in May with no employees, and then forged documents to claim he had paid millions in payroll taxes in 2019. He allegedly transferred a quarter million dollars of proceeds to his personal brokerage account.

High-Living Florida Man (Florida – July 27)

  • David T. Hines of Miami is charged with fraudulently seeking $13.5 million in PPP money using false statements about various companies’ payroll expenses. He was approved for $3.9 million. Days later he allegedly bought a 2020 Lamborghini Huracan sports car for $318,000. He also allegedly squandered money at luxury retailers and Miami resorts.

Miami Chiropractor (Florida – July 29)

  • Dennis Nobbe, a chiropractor in Miami, is charged with wire fraud, health care fraud, money laundering and conspiracy. He allegedly obtained $200,000 in Paycheck Protection Program and Economic Injury Disaster funds and used the money for personal expenses. Allegations also claim he perpetrated a credit card scam on low-income patients. He allegedly got patients to open credit cards to pay for out-of-pocket medical expenses for services he did not fully render.

Houston Partier (Texas – August 4)

  • Lee Price III is charged with making false statements to a financial institution, wire fraud, bank fraud and engaging in unlawful monetary transactions. He allegedly received over $1.6 million. He then went on a luxury buying blitz acquiring a Lamborghini Urus, a Rolex watch, a 2020 Ford F-350 pickup truck, and real estate — according to allegations. He allegedly squandered thousands at strip clubs and nightclubs.

The DOJ and U.S. Attorneys are using a variety of charges for enforcement, including wire fraud (18 U.S.C. § 1343) and making false statements to the SBA and FDIC-insured banks (18 U.S.C. § 1014). Depending on the charges, penalties could include up to $1 million in fines and up to 30 years in prison, legal experts say.

But of course, the government has to prove the allegations. Justice Department lawyers remind everyone that, “A criminal complaint is merely an allegation and a defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law. ”

More Prosecutions on the Horizon

PPP money is still available and the current deadline for applying is August 8, 2020 (unless extended). A total of roughly $649 billion has been authorized by Congress, leaving $130 billion still available for small businesses as of July 24th.

Have we seen the last of PPP fraud prosecutions? No. New ones are being announced weekly. But it’s important to remember that 30 frauds out of 5 million loans is a minuscule number. The overwhelming majority of loans have no allegations of fraud surrounding them.

Still, a June report by the Government Accountability Office found, “there is a significant risk that some fraudulent or inflated applications were approved.” Treasury Secretary Steven Mnuchin announced that the Treasury Department would review every PPP loan over $2 million. However, the GAO recommended oversight of the more than 4 million smaller loans, also.

The government watchdog also pressed for safeguards and oversight plans to avoid double dipping. There’s a recommendation to audit COVID-19 unemployment benefits paid to workers rehired by employers using PPP loan funds.

Yet to Come: The PPP Forgiveness Process

Another wrinkle is the loan forgiveness process. Millions of small businesses eventually will apply for forgiveness. That’s bound to trigger another round of scrutiny.

In order to get Paycheck Protection loans forgiven and not have to repay the money, small business owners have to show proof that at least 60% of the money was used for payroll and the rest for other permitted expenses. A requirement of forgiveness is that borrowers must rehire or retain workers — and maintain salary levels.

The DOJ has signaled it may also pursue civil penalties not just criminal prosecutions, particularly around loan forgiveness. Principal Deputy Assistant Attorney General Ethan P. Davis noted in a June 26th speech: “When the borrower is ready to seek forgiveness of the loan, it has to certify that the funds were in fact used to pay costs that are eligible for forgiveness. If an applicant knowingly answers any of these questions falsely, it may face False Claims Act liability.”

This means you have to be just as scrupulous when applying for forgiveness as when you applied for the money initially. The False Claims Act can impose steep financial penalties, including treble damages.

If the PPP debt is not forgiven, the interest rate is very low — 1%. Businesses that have to repay the money get 2 years to repay if funding was issued before June 5. If you got funding after June 5, you have five years to repay. The PPP promissory note you signed will have the terms applicable to you. See the SBA website for updated forgiveness information.

Should Business Owners Be Worried?

It’s a scary thing for legitimate business owners to sign borrower certifications under potential penalties of fines and prison time. The SBA programs have complex rules. It could be easy to trip up innocently.

This has caused some entrepreneurs and business owners to think twice about applying. No one under pressure of this pandemic wants to fumble on a technicality while legitimately trying to pay employees and keep their life’s work afloat. One local businesswoman told me she prayed for two weeks before applying because of her fears over confusing requirements.

Representatives of the Department of Justice say honest owners acting in good faith shouldn’t worry. Stephen J. Cox, the U.S. Attorney for the Eastern District of Texas, wrote in an op-ed in Texas Lawyer:

“Rest assured that we will be careful not to discourage legitimate businesses from accessing the important financial resources that Congress made available through the CARES Act. We will not punish companies that accessed stimulus funds in good faith compliance with the rules. Nor, will we seek out applicants who made technical mistakes in processing paperwork or honestly misunderstood regulatory or certification requirements. Our focus is on fraud.”

Let’s hope the entire government is on the same page as Mr. Cox.

This article is not intended as legal advice. It’s intended to offer news and peer perspective on an important issue that affects us as business owners. Stay informed and check with your attorney and/or accountant with questions.

Case data source and image source:

This article, “30 PPP Fraud Prosecutions So Far, and Counting” was first published on Small Business Trends

Source: Small Business Trends

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.