Fraud After COVID-19: The CARES Act and Wire Fraud, Bank Fraud, Money Laundering, and Aggravated Identity Theft Charges

It is only a matter of time before individuals and businesses will get charged in Missouri federal court for fraud stemming from the CARES Act loans, so Cantin Mynarich LLC has been keeping up with the criminal charges that have already been filed around the USA.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted March 29, 2020 to provide emergency financial assistance to Americans suffering the economic effects resulting from the COVID-19 pandemic. 

Any time that the Government authorizes loans, there are people who get charged for fraudulent activity connected to those loans. In fact, the Department of Justice has a National Center for Disaster Fraud Hotline (866-720-5721) so that people can report suspected CARES Act fraud.

This blog post gives a brief overview of the CARES Act and the types of criminal charges that are being prosecuted by the DOJ for CARES Act fraud.

Overview of the CARES Act, PPP, and EIDL

The CARES Act authorized up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses through the Small Business Administration’s Paycheck Protection Program (“PPP”).  In April 2020, Congress authorized over $300 billion in additional PPP funding.

The SBA allows the loans to be forgiven if all employee retention criteria are met, and the funds are used for eligible expenses. The following important details about the program are found at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#section-header-2:

• PPP loans have an interest rate of 1%.
• Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.
• Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
• No collateral or personal guarantees are required.
• Neither the government nor lenders will charge small businesses any fees.

Another program administered by the SBA is the Economic Injury Disaster Loans (“EIDL”) program, designed to provide economic relief to small businesses experiencing a temporary loss of revenue. EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses, such as continuation of health care benefits, rent, utilities and fixed debt payments.  If an applicant also obtains a loan under the PPP, the EIDL funds cannot be used for the same purpose as the PPP funds.

What type of crimes can a person be charged with for not following the requirements of PPP and EIDL? The most common are bank fraud, wire fraud, and money laundering. 

It is only a matter of time before individuals and businesses will get charged in Missouri federal court for fraud stemming from the CARES Act loans, so Cantin Mynarich LLC has been keeping up with the criminal charges that have already been filed around the USA. 

So far, the DOJ has already indicted individuals in Texas, Illinois Washington, and California for various CARES Act fraud crimes: 

On October 26, 2020, the DOJ in Seattle charged a man by Complaint (Case no. 2:20-mj-00691-BAT) with one count of wire fraud. The complaint alleges that the defendant submitted nine fraudulent loan applications on behalf of five different companies. The complaint also alleges that, in support of the fraudulent PPP loan applications, the defendant submitted fake federal tax filings. https://www.justice.gov/opa/pr/washington-man-charged-covid-relief-fraud

On November 12, 2020, seven individuals across two states (Texas and Illinois) were charged by the DOJ in Houston with conspiracy to commit wire fraud and wire fraud for their alleged participation in a scheme to obtain approximately $16 million in PPP loans (Case no. 4:20-cr-00583). One individual was also charged with three counts of money laundering.

The indictment alleges the defendants submitted more than 80 fraudulent PPP loan applications by falsifying the number of employees and the average monthly payroll expenses of the applicant businesses. In support of these fraudulent loan applications, they allegedly submitted fraudulent bank records and/or fake federal tax forms.  Some of the PPP loan applications were allegedly submitted on behalf of companies the defendants controlled. The indictment alleges that some of the other loan applications were submitted on behalf of entities that third-parties owned, and in exchange for these, several defendants received large kickbacks. 

The indictment further alleges the defendants laundered a portion of the fraudulent proceeds by writing checks from companies that received PPP loans to fake employees.  The indictment alleges that over 1,100 fake paychecks totaling more than $3 million in fraudulent PPP loan proceeds were cashed at one defendant’s business. Some of items allegedly purchased with illegally obtained funds included a Porsche and a Lamborghini. 

On November 17, 2020, the DOJ in Los Angeles charged four individuals with one count of conspiracy to commit bank and wire fraud, four counts of bank fraud, and six counts of wire fraud (Case no. 2:20-cr-00579-SVW). One of the four defendants was also charged with aggravated identity theft. Allegedly the defendants used fake, stolen, or synthetic identities to obtain PPP and EIDL loans. Furthermore, they allegedly used the funds for improper personal purposes such as purchasing residential properties.

Cantin Mynarich LLC handles fraud cases in federal court. Call us if you received a PPP or EIDL loan and are being investigated for fraud.