Justice Department charges 57 in alleged theft of $175M in pandemic relief funds

The Justice Department has so far charged 57 people with trying to steal a total of $175 million in taxpayer-backed coronavirus pandemic loans, officials said at a Thursday news conference, part of a months-long effort to stamp out profiteering as the federal government continues to spend giant sums of money to stimulate the economy.

The Paycheck Protection Program, a taxpayer-subsidized loan program that is regulated by the Small Business Administration and implemented by banks and financial technology companies, has been a fraud concern from the moment it was rolled out in early April. Funds were disbursed with relatively little vetting, and businesses were allowed to self-certify their own eligibility.

“The PPP program represented critical help at a critical time,” acting assistant attorney general Brian Rabbitt told reporters on Thursday. “Unfortunately, the crisis brings out not only those that try to help others, but those who try to take advantage of the crisis for personal gain.”

An SBA representative declined to comment Thursday.

Those charged include individuals who allegedly received money on behalf of fake companies; legitimate business owners accused of spending the funds on luxury items for themselves rather than on employees’ paychecks; people who allegedly knew they weren’t eligible but applied anyway; businesses that allegedly double-dipped in a program meant to provide one loan per business; doctors accused of stealing from patients; suburban homeowners who allegedly pretended to be farmers; and elaborate rings of people accused of trying to steal tens of millions of dollars.

The $175 million that fraudsters have attempted to steal has entailed a known loss of $80 million to the government, officials said. The Justice Department was able to recover $30 million.

Officials said the total amount of fraud is unclear at this point, and more charges are expected over the coming months and years. SBA-approved banks have processed well over $500 billion in PPP loans, suggesting that the total amount of fraud could be much higher.

Rabbitt and other federal law enforcement officials said the effort to identify fraudulent loan recipients began soon after banks started processing the loans.

“Anytime the government makes a large amount of money available to the public, the opportunities for fraud are unfortunately clear. We began investigating almost immediately, and we brought our first cases within months of the first loans being made,” Rabbitt said.

Officials said many of the fraud cases fall into one of two categories: people who illegally spent PPP loan funds on themselves, or groups of individuals who coordinated together to defraud the program on a massive scale across numerous loan applications. Still others have been docked for bending the rules to get more money or to get loans for businesses that shouldn’t have been eligible.

Among the first prosecuted was Maurice Fayne, a reality TV star who received a $3.7 million PPP loan for a business called Flame Trucking which was registered in his name. Fayne allegedly spent about $1.5 million in pandemic assistance funds on fancy jewelry, diamonds and child support payments. Upon his arrest in early May federal agents seized $80,000 in cash including $9,400 that Fayne had in his pockets, according to a Justice Department news release.

More recently, a New Jersey-based attorney named Jae Choi was arrested and charged with fraudulently obtaining $9 million in pandemic loans through three separate lenders. Choi allegedly fabricated records that falsely stated businesses owned by him had hundreds of employees. Choi spent the funds on a home in New Jersey worth nearly $1 million and invested millions in the stock market under accounts in the name of his spouse, according to the Justice Department.

Some of the individuals who defrauded the program had previous criminal records that should have prevented them from participating; in late August, the owner of a failed construction company in St. Paul, Minn., was charged with receiving $841,000 for a company that had closed and had no employees.

More recently the charges brought by the Justice Department have targeted large groups of people that allegedly worked together to steal large sums of money. In early August, the Justice Department charged five people from Georgia, Ohio and California with fraudulently obtaining PPP loans on behalf of businesses they owned, before spending the money on luxury vehicles and jewelry.

The financial institutions that have done most of the work in distributing PPP funds could also be held liable. In a letter published Thursday, Sen. Marco Rubio, R-Fla., admonished J.P. Morgan chief executive Jamie Dimon over reports that several of the banks employees were involved in misuse of pandemic relief funds. Later a Hollywood film producer named William Sadleir was charged with fraudulently seeking more than $1.7 million in PPP loans to pay employees of his film production and distribution companies, only to instead use the funds to pay off credit card debt and an $80,000 car loan.

SBA coronavirus loan programs “were intended to provide critical economic assistance to small businesses during this time of enormous need. Financial institutions, like yours, are on the frontlines of providing PPP assistance,” Rubio wrote. “Allegations that employees of financial institutions have exploited either the PPP or EIDL programs for their own gain must be investigated fully.”

A separate SBA-administered pandemic loan program, called Economic Injury Disaster Loans, also has been a magnet for fraud. An inspector general’s report released in late July concluded that the program was vulnerable to “pervasive” fraud as the government rushed to spend money when the economic crisis was at its worst. Numerous investigations are ongoing for both loan programs.