Less than four months after the CARES Act was enacted on March 29, 2020, the Department of Justice has filed criminal charges against at least eight individuals in connection with alleged fraudulent schemes arising out of pandemic-related government assistance programs.
Recently, on June 23 the United States Attorney’s Office for the Eastern District of Texas unsealed an indictment alleging a Texas businessman filed fraudulent applications seeking more than $3 million in forgivable Paycheck Protection Program (“PPP”) loans guaranteed by the Small Business Administration (“SBA”). The Justice Department alleges that Fahad Shah claimed in his loan applications to have over 120 employees, but in reality, at the time no employees worked for his business, WBF Weddings by Farah Inc. Prosecutors allege that Shah used the $1.5 million in funds to buy a Tesla, and personal investments and home mortgage payments. He is charged with wire fraud, false statements to a bank, and money laundering.
The United States Attorney’s Office for the Southern District of New York announced on May 21 the arrest of Muge Ma, a Chinese national living in Manhattan, for conducting a fraudulent scheme to obtain over $20 million in loans related to pandemic government assistance programs. Ma, who has been charged with bank fraud and other offenses is alleged to have submitted fraudulent loan applications to five different banks for relief from the PPP and the Economic Injury Disaster Loan Program. The Justice Department alleges he falsely represented that his two companies had hundreds of employees, meanwhile he was the only employee. Additionally, Ma allegedly falsely held out one of his companies, New York International Capital LLC, as representing the state of New York in procuring covid-19 test kits and covid-19 protective equipment.
As we discussed in our prior post dated May 20, the Department of Justice’s first charges related to fraud on a pandemic government assistance program came on May 4, 2020 in the District of Rhode Island. Two businessmen, David A. Staveley and David Butziger, are alleged to have filed bank loan applications fraudulently seeking more than a half-million dollars in forgivable loans. The Justice Department alleges the loans were sought to pay dozens of employees at business that were not even in operation prior to the pandemic, and in one case, to pay employees at a business that the loan applicant did not own. Staveley and Butziger are charged with conspiring to seek forgivable loans guaranteed by the SBA, among other charges.
Some other prosecutions alleging fraudulent schemes to obtain forgivable PPP funds arise out of the Northern District of Georgia, where reality-tv personality Maurice Fayne was arrested after applying for and receiving more than $2 million in forgivable PPP loans and allegedly using most of the proceeds to purchase jewelry, lease a 2019 Rolls Royce, make loan payments, and pay child support; the Northern District of Illinois, where the owner-operator of Chicago information technology companies allegedly submitted fraudulent IRS documents and overstated payroll expenses in support of his application for more than $440,000 in PPP funds; and the Eastern District of Texas, where a businessman is alleged to have applied for more than $5 million in PPP loans by submitting a list of phony employees on his business’s payroll that he obtained from a public, random name generator on the internet.
More pandemic-related prosecutions are expected in the coming months and even years. After many large companies were publicly criticized for improperly applying for and accepting PPP loans, the Treasury Department and SBA set May 14 as a “safe harbor” deadline for recipients of PPP loans to return PPP funds in full, without penalty. Treasury Secretary Steve Mnuchin has announced the IRS and SBA will be auditing all loans that exceed $2 million.