As the pandemic slowly recedes, leaving a host of hastily-enacted funding and programs in its wake, the government’s recovery and clean-up efforts are well underway. In April and May 2021, the Department of Justice (DOJ) announced a wide range of arrests, indictments, sentencings, and forfeitures involving pandemic relief fraudsters. A survey of these cases indicates that the government’s enforcement efforts are not only extensive, involving multiple law enforcement agencies and task forces, but are also relying on multiple fraud statutes, including identity theft and money laundering, as well as significant forfeitures.
In March 2020, the CARES Act provided emergency financial assistance to Americans suffering the economic effects caused by the COVID-19 pandemic, including in the form of forgivable loans to small businesses for job retention and other specified expenses through the Paycheck Protection Program (PPP). The PPP allowed qualifying small businesses and other organizations to receive unsecured loans at an interest rate of 1%, but required that the proceeds be used for payroll costs, mortgage interest, rent, and utilities. The interest and principal could be forgiven as long as the proceeds were spent within a certain time period and were used, at least in part, for payroll expenses. Inevitably, the prospect of free money, the vague requirements for loan eligibility, changing directives from the government, and the need to get the money to the recipients as quickly as possible all resulted in fraud involving billions of dollars.
On May 12, 2021, a judge in the Southern District of Florida sentenced a man to more than six years in prison for fraudulently obtaining approximately $3.9 million in Paycheck Protection Program (PPP) loans and using those funds, in part, to purchase a $318,000 Lamborghini luxury car for himself. The defendant, who pleaded guilty to one count of wire fraud, submitted multiple PPP applications, claiming to have had dozens of employees and millions of dollars in monthly payroll. In addition to submitting false and fraudulent IRS forms to support the applications, the defendant also assisted other individuals in obtaining fraudulent PPP loans. The court also ordered the forfeiture of the $3.4 million in fraudulent loan proceeds seized by law enforcement seized, as well as the Lamborghini.
On May 7, 2021, in the District of Connecticut, a man was charged in a criminal complaint with bank fraud and wire fraud offenses related to his receipt of nearly $2.9 million in COVID-19 relief funds. Beginning in May 2020, the defendant submitted false and fraudulent information in PPP loan applications for each of five entities in which he maintained ownership or management interests. He obtained $2,897,100 in loan funds, which he then used various personal expenses, including paying off a loan on a 2010 Porsche Panamera Turbo, purchasing both a Mercedes and BMW, buying a $50,000 certificate of deposit, and disbursing funds to various and individuals unrelated to his business entities.
On May 7, 2021, an Orange County man was arrested in the Central District of California in connection with having fraudulently obtained approximately $5 million in PPP loans for his sham businesses, which he then spent on himself, including purchasing Ferrari, Bentley, and Lamborghini sports cars. The false information in the fraudulent applications allegedly included the number of employees, altered bank account records, and fictitious quarterly federal tax return forms, as well as someone else’s name, Social Security number, and signature. The defendant was charged with four counts of bank fraud, four counts of wire fraud, one count of aggravated identity theft, and six counts of money laundering.
On May 6, 2021, a man pleaded guilty in the Northern District of Oklahoma to making a false statement to a financial institution in connection with his application for a PPP loan. The defendant falsely claimed that his company had a payroll of $120,000; employed 20 people; was in operation on Feb. 15, 2020, and had employees for whom it paid salaries and payroll taxes.
On May 6, 2021, a New York and Florida resident was charged with fraudulently obtaining PPP loans totaling $3.8 million. The defendant allegedly submitted eight fraudulent PPP loan applications to several lenders on behalf of seven purported businesses, including his New York City-based hedge fund management firm. The defendant submitted false information and documents, including the number of his employees, federal tax returns for his businesses, and his payroll documentation. Having fraudulently obtained the loans, the defendant laundered and misused the loan proceeds by, among other things, transferring those proceeds to brokerage accounts and placing more than $3 million in losing stock trades. The complaint charged the defendant with eight counts of wire fraud affecting a financial institution and six counts of money laundering.
On May 5, 2021, in the Western District of Missouri, a man pleaded guilty to one count of wire fraud and two counts of money laundering, admitting that he applied online in May and June 2020, and received three PPP loans totaling $522,765 for three separate business entities. The defendant falsely claimed his three businesses were operational and employed numerous individuals in February 2020, when in fact, the businesses had not been operational and did not employ any other individuals, and also admitted that he directed the fraudulently obtained PPP loan proceeds to be wired to his bank accounts. He used the proceeds to purchase a 2016 Cadillac, a 2020 Dodge Charger, and a 2017 Dodge Challenger.
On May 4, 2021, a former pizzeria owner was arrested in the District of Massachusetts on a criminal complaint charging him with one count of wire fraud and one count of money laundering. As alleged in the complaint, in April 2020, the defendant submitted a fraudulent PPP loan application, in which he inflated information about the pizzeria’s employees and payroll expenses and falsified an official tax form in an effort to qualify the business for a larger loan amount. The complaint further alleges that, after receiving a PPP loan of over $660,000, the defendant sold the pizzeria and used nearly all the funds for personal expenses, including to purchase and upgrade a farm in Vermont as well as to buy several alpacas, at least two vehicles and weekly airtime for a cryptocurrency-themed radio show.
On April 29, 2021, the government obtained a final civil judgment in the Middle District of Florida that ordered the forfeiture of $8,417,261.38 in proceeds from bank fraud and money laundering offenses related to COVID Relief Fraud. According to court documents, various family members fraudulently obtained millions of dollars in PPP loan funds, and misused the funds by attempting to purchase a $3.7 million luxury home in the Four Seasons Private Residence community at Walt Disney World Resort. The remaining funds were transferred among multiple bank accounts held by the conspirators in an attempt to hide and conceal them.
On April 28, 2021, in the Southern District of New York, a Manhattan man was arrested on a criminal complaint charging him with major fraud against the United States, bank fraud, wire fraud, making false statements, and money laundering in connection with an alleged fraudulent scheme to obtain $5.8 million in PPP loans. Between in or about May 2020 and in or about April 2021, the defendant submitted at least seven applications for PPP loans for various businesses, falsely stating the number of employees and the payroll amounts for each business and submitting, in many cases, fake bank statements, designed to support the false statements. The defendant received at least approximately $2.17 million in PPP loans, a substantial portion of which was spent on the defendant’s personal expenses.
On April 28, 2021, a Montgomery woman was arrested in the Middle District of Alabama on an indictment charging her with submitting at least six fraudulent applications for $1.6 million in PPP loans. In each application, the defendant falsely inflated the number of employees, as well as the average monthly payroll for the businesses, which she supported with falsified tax documents. As a result, the defendant received a total of $609,687.47 of PPP funds, which she then used for herself, her husband, and other family members and to purchase luxury vehicles. The indictment included multiple counts of bank fraud, making false statements to a federally insured bank, and money laundering.
On April 22, 2021, a federal grand jury in the Western District of North Carolina indicted a man for fraudulently obtaining more than $1.5 million in PPP loan funds. The indictment alleges that the defendant submitted fraudulent loan applications on behalf of two businesses that included false information about its purported payroll and fraudulent documentation about its monthly payroll disbursements. The defendant is charged with wire fraud in relation to a disaster benefit, two counts of making false statements to a bank, and two counts of money laundering.
On April 21, 2021, a Central District of California man was arrested on an indictment charging him with four counts of wire fraud. On May 1, 2020, the defendant obtained a $7.25 million loan for his company, based on an application claiming that the company was in the process of hiring 450 full-time employees and would have average monthly payroll expenses of $2.9 million. After the loan was funded, the defendant allegedly misappropriated hundreds of thousands of dollars, which he used to purchase a luxury car for more than $100,000, pay off a loan on a different luxury car, buy a $6,000 computer, make a non-refundable $100,000 down payment on a company in New Hampshire, and to attempt to send approximately $150,000 to accounts in Mauritania associated with a minerals exploration company.
On April 21, 2021, a defendant pleaded guilty in the District of New Jersey to obtaining funds from a deposited stolen and altered U.S. Treasury check, as well as fraudulently receiving PPP loan funds. On June 24, 2020, the defendant caused to be submitted a fraudulent PPP loan application on behalf of a purported business he controlled. The PPP application falsely represented that the company had 25 employees, had monthly payroll expenses of approximately $192,000, and had mortgage/lease and utility expenses when, in fact, the company did have any employees or any payroll or utility expenses. Based on the fraudulent application, the defendant’s purported business received $481,502, a portion of which the defendant converted to his own use.
On April 20, 2021, a CEO pleaded guilty in the Southern District of New York to multiple fraud schemes, including fraudulently obtaining over $7 million in PPP loan funds. From at least in or about April 2020 through at least on or about August 13, 2020, the defendant used other individuals’ identities in online applications to the SBA and at least five financial institutions for a total of over $7 million in PPP and other Covid-relief loans. The defendant falsely represented that other individuals were the sole owners of his companies, that the companies together had over 200 employees, and that the companies paid a total of approximately $1.5 million in wages monthly, when, in fact, the companies had no more than 14 employees. To support the false representations in the loan applications, the defendant submitted fraudulent tax records that were never actually filed and payroll records containing the forged electronic signature of a payroll company employee. Based on the fraudulent PPP loan applications, the companies were approved for more than $3.7 million in PPP loans and received approximately $2.8 million, which was deposited into the defendant’s bank accounts. The defendant transferred over $1 million abroad, withdrew approximately $360,000 in cash and/or cashier’s checks, and spent at least approximately $279,000 on personal expenses, including an 18-carat gold Rolex watch, rent and move-in fees for a $17,000 per month luxury condominium, furnishings for the condominium, a portion of the purchase of a 2020 Mercedes S560X4, and purchases totaling approximately $37,000 at Louis Vuitton, Chanel, Burberry, Gucci, Christian Louboutin, and Yves Saint Laurent.
On April 15, 2021, a couple in the Middle District of Pennsylvania was charged with conspiring to commit bank fraud, two counts of bank fraud, two counts of making false statements on loan applications, conspiring to commit money laundering, three counts of money laundering, and various counts of making false statements to IRS agents. According to the indictment, the defendants and other co-conspirators created a shell corporation and opened bank accounts and a Bitcoin trading account in the corporation’s name by using false and forged documents. The conspirators allegedly used the accounts to receive over $135,000 in fraudulently obtained funds and over $296,000 from a PPP loan obtained with false and forged documentation, including false information and certifications about the purported corporation’s payroll obligations and forged IRS documentation.
On April 6 and 9, 2021, in the Northern District of Oklahoma, a couple pleaded guilty, each to one count of bank fraud, and the husband to one count of aggravated identity theft, in connection with their fraudulent application for a PPP loan. The male defendant lied about the number of people employed during the previous months of purported operations, the payroll expenditures during the previous months, taxes paid during previous months of operation, ownership of the business, and relationships between the parties in a $300,000 loan application submitted for one business. He further admitted that to unlawfully using another individual’s identity on payroll records submitted with the application for the $300,000 loan. The female defendant admitted that from April 14, 2020, to April 29, 2020, she fraudulently applied for a $150,0000 PPP loan for another business, lying about the number of employees, and misrepresenting the payroll expenditures during the previous months, taxes paid during previous months of operation, ownership of the businesses and relationships between the conspirators. According to the indictment, however, the couple created 12 fictitious business entities, submitted multiple applications for the same businesses to more than ten different banks, and conspired to obtain loans in the approximate amount of $5,430,585 and actually obtained $995,385 in fraudulent loans.
On April 12, 2021, an Eastern District of Wisconsin man pleaded guilty to fraudulently obtaining over $600,000 in PPP loans. The defendant, who pleaded guilty to bank fraud, admitted that he fraudulently sought, on behalf of three different companies, over $600,000 in PPP loans, submitting applications that made numerous false and misleading statements about the companies’ respective payroll expenses and then used a portion of the proceeds for personal expenses.
On April 9, 2021, in the Western District of Arkansas, a man pleaded guilty to one count of making a false statement on a PPP loan application and one count of mail fraud in connection with a scheme to collect Pandemic Unemployment Assistance (PUA). According to the plea agreement, the defendant received a $180,000 PPP loan by falsely representing that he owned a business in need of financial assistance when, in fact, the business did not exist.
On April 8, 2021, a man was charged with wire fraud and money laundering in the Northern District of New York after obtaining approximately $150,000 in PPP loans. The criminal complaint alleges that in support of the loan applications, the defendant submitted fraudulent tax documents and fabricated bank statements.
On April 7, 2021, a federal grand jury in the Western District of Michigan indicted five men on multiple charges for fraudulently obtaining and misappropriating Paycheck Protection Program (“PPP”) loan funds. The defendants received approximately $1.495 million in PPP loans for two shell companies and attempted to transfer the money to conceal that it was fraudulently obtained. The range of charges included conspiracy to commit wire fraud, wire fraud, conspiracy to engage in money laundering, and money laundering.
On April 6, 2021, four individuals were separately charged in the Southern District of Ohio with defrauding the PPP loan program. In separate cases, the four are alleged to have lied about owning businesses and employing others. Some defendants allegedly applied multiple times for relief funding, and some allegedly spent the funding they received on lavish personal items and vacation travel. The defendants were charged with a variety of offenses, including fraud in connection with disaster relief, bank fraud, and making false statements.
On April 5, 2021, a criminal complaint was filed in the District of Maryland, charging the defendant with wire fraud in connection with PPP and EIDL loans totaling $2.2 million. The defendant allegedly submitted fraudulent tax forms with his PPP loan application, which reported substantial payments and unemployment payments to purported employees when there was no evidence of either payments or employees. The defendant also submitted an EIDL loan application on behalf of the same entity that contradicted the information and supporting documentation he submitted for the PPP loan application. After receiving $1,556,589 in PPP loan funds, the defendant made numerous transfers to his personal bank accounts and used the funds for credit card bills, purchases at restaurants, retail stores, grocery stores, and automotive auctioneers, and mortgage payments for his residence, as well as to purchase 39 used automobiles (including a 2017 Mercedes-Benz S-Class, two 2017 Infinity Q50s, a 2015 Cadillac Escalade, a 2005 Bentley Continental, a 2018 Tesla Model 3, a 2014 GMC Yukon XL, and several older model luxury vehicles).
On April 2, 2021, a couple was charged in the Middle District of Florida with conspiracy and making false statements to a financial institution, while the male defendant was also charged with money laundering in connection with $5.8 million in COVID-relief loans. According to the complaint, beginning in or about March 2020, the couple submitted at least 70 false and fraudulent PPP and EIDL loan applications, including for shell companies they and their relatives established. The defendants misused the PPP and EIDL funds by withdrawing at least $320,000, paying off a luxury vehicle, spending more than $62,000 at casinos, and for other personal purposes.
PPP loan fraudsters have been charged more often than not with multiple offenses, ranging from wire fraud, bank fraud, fraud involving major disaster funds, identity theft, Social Security fraud, making false statements, money laundering, and conspiracy.
PPP loan cases are being investigated by broad task forces and agencies across the government, including the FBI, IRS, DEA, Secret Service, Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), as well as the Inspector General Offices of numerous agencies, including the Small Business Administration (SBA), Social Security Administration (SSA), Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), etc.
PPP loan cases are frequently associated with other criminal behavior and result in additional charges and penalties in other criminal cases.
The government is aggressively pursuing forfeiture.
To date, most cases have involved straightforward frauds, e.g., providing false information in loan applications, falsifying the numbers of employees and payroll costs, submitting multiple applications to different lenders, and diverting the funds to personal use and lavish expenditures.
Whether these types of cases are so numerous that they will consume most of the government’s efforts, or whether the government will begin to focus its investigative efforts on certifications of economic necessity is still difficult to tell.