By Julie Jason, Originally posted on Forbes.com:
I have written about how to legitimately apply for and seek forgiveness of Paycheck Protection Program (PPP) loans for small businesses for a while now, but this time I’m writing about borrowers who went too far – way too far.
Recently, the U.S. Department of Justice arrested a Los Angeles man who concocted a scheme to raise $8.5 million in PPP loans that looked like they were based on pure fakery.
By using aliases to submit fraudulent applications on behalf of a number of companies, the fraudster applied for PPP loans. According to court documents, he made “numerous false and misleading statements about the companies’ respective business operations and payroll expenses.” He also submitted “fake and altered documents” in support of the applications, including “fake federal tax filings and employee payroll records.”
Where Did The Money Go?
What the fraudster did with the proceeds was a story in itself. Apparently, he paid a visit to a Las Vegas casino, spending hundreds of thousands of dollars. And he also made risky stock market bets.
A number of federal agencies, including the FBI, the IRS and the Small Business Administration, were involved in the investigation that uncovered the scheme. The California Department of Justice’s Bureau of Gambling Control also was involved.
This was an egregious example of taking advantage of a government program that was intended to help small businesses suffering the economic effects of the COVID-19 pandemic. Relief was provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became law on March 27, 2020. The act created the PPP, which made loans that were forgivable under certain circumstances.
Not The Only Case
Unfortunately, the Los Angeles case was not an isolated incident. The first charges related to PPP fraud came in early May, and there have been more than 15 cases of alleged fraud announced since then.
Earlier in July, a Florida man was charged with wire fraud and conspiracy to commit health care fraud for allegedly seeking several PPP loans, with some of the money he received possibly used to help further a Medicare scam.
In June, according to the Justice Department, a married couple in Virginia was arrested at a New York airport as “they were attempting to flee to Poland.” According to court documents, the couple submitted 18 PPP loan applications that contained “materially false statements” and received loans totaling more than $1.4 million.
In the same month, a Texas man was indicted for allegedly filing false PPP loan applications seeking more than $3 million. According to the indictment, he “claimed to have over 120 employees earning wages when, in fact, no employees worked for his business at the time.”
In May, a reality TV personality was arrested on federal bank fraud charges after allegedly using more than $1.5 million of a PPP loan to, among other things, buy jewelry and make child support payments.
All of these cases involve allegations that have to be proven in court.
Criminals are drawn to money like bees to honey.
The Government Is Watching
According to a recent Government Accountability Office report to Congress (“Covid-19 Opportunities to Improve Federal Response and Recovery Efforts”), lenders had made about 4.6 million PPP loans totaling about $512 billion. About 86 percent of loans (about $137 billion) were for $150,000 or less; about 2 percent of loans were greater than $1 million (about $180 billion) and accounted for 35 percent of loaned funds.
As the GAO reported: “Due to the very nature of the government’s need to quickly provide funds and other assistance to those affected by COVID-19 and its economic effects, federal relief programs are vulnerable to significant risk of fraudulent activities. The schemes used to defraud government, as well as private businesses and individuals, are endless, and many have already emerged during the COVID-19 pandemic.”
Fraudsters are being ferreted out. As U.S. Attorney Byung J. “BJay” Pak said: “We will investigate and charge anyone who inappropriately diverts these critical funds for their own personal gain.”
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