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 Another PPP Fraud Prosecutor & Recent Sentences 

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Michael Santos

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Introduction

During his first State of the Union address to Congress, President Joe Biden emphatically declared that the “watchdogs are back.” 

The President chided the previous administration claiming that it undermined the watchdog role across the federal government, which led to significant fraud and corruption. 

President Biden is making the crackdown on cheating and waste a top priority. Specifically targeted will be any cheating and waste in government programs designed to help small business owners and individuals during the COVID-19 pandemic and beyond.

A Chief Prosecutor for fraud in pandemic relief is on the way.

The President’s announcement referred in part to the Department of Justice’s plan to appoint a Chief Prosecutor for fraud in pandemic relief funds. The new chief prosecutor will work with the previously announced federal COVID-19 Fraud Enforcement Task Force to focus on the most egregious cases of pandemic fraud.

Federal law enforcement suspects that the government doled out about $100 billion in fraudulent COVID-19 relief funds, including the Paycheck Protection Program (PPP), Economic Injury Disaster Loan program (EIDL), pandemic-related Unemployment Insurance programs, and others.

Indeed, to date, DOJ has investigated thousands of cases nationwide against people alleged to have illegally obtained forgivable loans meant for small businesses during the pandemic. The DOJ has filed public charges of pandemic fraud against more than 470 defendants. 

The total amount of pandemic-related criminal fraud formally prosecuted so far is more than $569 million, which is only a fraction of the suspected billions in fraud. Thus, the Biden administration intends to intensify law enforcement crackdowns on people suspected of stealing billions of dollars in COVID-19 aid. 

Small business owners and anyone who received pandemic relief funds must remain on high alert as the government increases dedicated resources to scrutinize PPP and other pandemic loans and programs. Even people whose pandemic loans have been forgiven are not out of the woods because the federal government may yet allege fraud in the loan forgiveness process as well. 

This latest announcement is part of reinvigorating the focus on pandemic relief fraud across multiple federal investigative agencies. 

For example, the US Secret Service recently selected a senior agency official to serve as the National Pandemic Fraud Recovery coordinator. The Secret Service has been very active in the effort to root out pandemic relief fraud. Secret Service investigations into unemployment insurance and PPP loan fraud have led to the seizure of more than $1.2 billion and the return of more than $2.3 billion of fraudulently obtained relief.

The COVID-19 Fraud Enforcement Task Force

The DOJ already has in place a COVID-19 Fraud Enforcement Task Force. 

What does the Covid-19 Fraud Enforcement Task Force do?

The Task Force mainly targets fraud schemes related to economic relief under the CARES Act of 2020. Examples of fraud uniquely related to the pandemic include PPP and EIDL loans, unemployment insurance, fake vaccine passports, and price gouging of scarce resources, which are key areas of focus.

However, in order to further reinforce the leadership of the Task Force, the federal government will name a Chief Prosecutor to lead the various teams of prosecutors and federal agents. They will focus on significant pandemic targets fraud, such as people suspected of large-scale identity theft, domestically or abroad.

The COVID-19 Fraud Enforcement Task Force supports all law enforcement efforts to investigate and prosecute domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud, per the DOJ announcements. 

The Task Force facilitates the sharing of resources and cooperation among various agencies so that resources and techniques to uncover fraud schemes are available across multiple agencies.

The DOJ Task Force and the Chief Prosecutor will continue to use state-of-the-art data analytics tools to track down identity theft and other complex fraud schemes committed across state lines or transnationally. The federal government will also continue to aggressively investigate major criminal fraud cases in programs like the Paycheck Protection Program (PPP), EISL Loan Program, and Unemployment Insurance Program.

Observers expect this latest announcement will result in hundreds if not thousands of new indictments of individuals and businesses who received pandemic aid. The DOJ  requested that Congress provide additional financial resources needed for the DOJ Task Force to expand prosecutions of pandemic fraud. 

President Biden will also use executive order powers to issue broad government-wide directives to prevent and further detect identity theft involving public benefits.

At an appearance following the President’s announcement of the Chief Prosecutor role, Attorney General Merrick Garland added:

“As the president also noted in his address, I will soon be naming a chief prosecutor to lead specialized teams dedicated to combating pandemic fraud,” which builds “on the existing work of the COVID-19 Fraud Enforcement Task Force that I established last May. 

“The Justice Department is also working more closely than ever with Inspectors General across the federal government to identify perpetrators of health care fraud, procurement fraud, and every other kind of government-program fraud.”

As far as budget monies to fund these efforts, Garland noted that “the president’s budget request for fiscal 2022 includes an additional $36.5 million for the U.S. Attorneys’ Offices and the Criminal Division, which will help the department increase its actions to combat pandemic fraud.”

No one should doubt that this is a serious effort to increase substantially pandemic fraud enforcement. 

Prosecutions & Investigation Notes

What we have seen thus far in the federal government’s prosecution of PPP and other pandemic-related fraud is only the tip of the iceberg. In light of the news above, people ought to anticipate that the number and pace of PPP loans and other pandemic fraud cases to increase by thousands. 

According to the most recent reports, the US Secret Service alone has over 900 active investigations involving pandemic fraud. A 30-year Secret Service agent, Roy Dotson, observed that he’s never seen fraud on this scale during his 20 years working on complex fraud investigations. 

The US Small Business Administration, one of the agencies on the front lines of these small business pandemic fraud investigations, told Congress last month that “the [crackdown] work has really just begun.”

The SBA’s witness to Congress, SBA Inspector General Mike Ware, testified that it would be years before the SBA will fully know just how widespread the fraud is. Ware emphasized that “in terms of the monetary value, the amount of fraud in these COVID relief programs is going to be larger than any government program that came before it.” 

Most Recent Pandemic Fraud Sentencing Outcomes

This sample of recent sentencings shows that the federal government is still active filing, prosecuting and seeking to convict people of pandemic fraud charges. 

OHIO

A recent batch of sentencings out of Ohio confirms that DOJ prosecutors continue to ask federal sentencing judges to impose the most severe penalties. 

Three defendants’ sentencings in the Northern District of Ohio last month resulted in each being ordered to pay close to $500,000 in restitution and to serve prison terms of 72 months (6 years), 66 months (5 1/2 years), and 60 months (5 years). 

The allegations against the defendants in the Ohio case stated that they conspired to apply for fraudulent PPP loans for registered businesses, with the understanding and agreement they would provide a portion of the PPP loan proceeds to another co-conspirator, who acted as the recruiter. 

To further the fraudulent scheme, the participants, 

  • lied about how many employees they had in their businesses
  • lied about the average monthly payroll expenses in their businesses
  • submitted false tax and bank records in support of their loan applications and
  •  applied for fraudulent Economic Injury Disaster Loans and misrepresented the number of employees, gross revenues, and costs of goods sold for each business. 

In total, the defendants applied for more than $2.7 million in PPP and EIDL funds. Significantly, rather than use the funds for any legitimate purpose, they used the pandemic relief proceeds for personal benefit, including cash withdrawals and luxury goods. They were convicted of conspiracy to commit wire fraud.

FLORIDA

In a separate Florida case, the defendant received a sentence of five years in federal prison. In this case, the defendant filed 13 fraudulent applications seeking more than $2.1 million in PPP and EIDL funds. 

This activity led to a conviction for wire fraud, and aiding and assisting in preparing false tax returns. Eight of the 13 pandemic relief applications were approved, resulting in the disbursement of $1.3 million.

MICHIGAN

After pleading guilty to conspiracy to commit wire fraud and money laundering, two men from Michigan (and Georgia) received their sentences for 36 months and 33 months, each. They had been under investigation since 2020. 

The federal investigation showed that between June 2020 and December 2020, they conspired with each other and others to obtain PPP loans from the Small Business Administration fraudulently. They discussed how to obtain PPP loans for non-operational companies and prepared false tax documents for submission with PPP loan applications. 

In the end, they successfully obtained almost $1.5 million in PPP loan funds. Of that, law enforcement seized and recovered over $1,123,567, traceable to the defendants’ scheme.  

The sentencing judge specifically noted the need and importance of deterring others from participating in such schemes in the future as a critical reason for the prison sentences imposed. The court also ordered defendants to pay back just about $1.5 million in restitution.

At sentencing, prosecutors derided the defendants as greedy, get-rich-quick schemers who illegally took money from the Paycheck Protection Program and harmed small businesses’ owners and employees struggling through the COVID-19 pandemic. 

In criminal sentencing matters, defendants must prepare to counter the narrative that prosecutors present to the sentencing judge. Prison Professors, an Earning Freedom company, regularly assists people in preparing sentencing mitigation strategies to address the misleading picture prosecutors might present at sentencing.

Conclusion

Congress authorized billions for pandemic relief under the $2.2 trillion CARES Act (Coronavirus Aid, Relief, and Economic Security Act). Inevitably, fraudulent applications for various forms of pandemic relief were submitted and approved.

It will take years to uncover all of the fraud that occurred in pandemic relief programs. Thus, notwithstanding all the law enforcement efforts to date, even more aggressive enforcement is on the way. The DOJ has recovered only a fraction of the fraudulently obtained funds. 

The DOJ and President Biden have repeatedly indicated they will spare no resources and are fully committed to going after those suspected of stealing billions of pandemic relief money. 

Prison Professors, an Earning Freedom company, works alongside (not in place of) civil and criminal defense counsel to help clients proactively navigate through investigations and prosecutions. Our team also helps clients prepare mitigation and compliance strategies.

If you have any questions or are uncertain about any of the issues discussed in this post, schedule a call with our risk mitigation team to receive additional guidance.

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