Since April 2020, through the CARES Act, the government has provided billions of dollars in emergency financial assistance to Americans suffering from the economic effects caused by the COVID-19 pandemic, including through forgivable loans to small businesses for job retention and other specified expenses under the Paycheck Protection Program (“PPP”). Inevitably, and from the start, the program’s generous terms, coupled with the need to get the funds out as quickly as possible, proved irresistible to fraudsters. By the end of May 2020, the Department of Justice (“DOJ”) had announced at least four prosecutions for PPP loan fraud schemes involving millions of dollars.1 While many of these early cases involved low-hanging fruit — e.g., providing false information in loan applications, falsifying the numbers of employees and payroll costs, submitting multiple applications to different lenders, etc. — a growing number of cases have exposed more sophisticated multi-state fraud schemes involving multiple individuals, evidence that the DOJ’s focus on PPP loan and other COVID fraud investigations is also evolving.
Multi-State $35 Million Scheme Involving Over Two Dozen People
On December 14, 2021, in one of the largest COVID-19 fraud schemes in the nation, two Florida men pleaded guilty in the Northern District of Ohio to conspiring to commit wire fraud in connection with a nationwide scheme to fraudulently obtain over $35 million in PPP loans.2 James R. Augustin and Phillip J. Stote obtained a fraudulent PPP loan for Augustin’s company, Clear Vision Music Group LLC, using falsified documents. After successfully submitting that application, Stote and Augustin recruited other PPP loan applicants, and were responsible for submitting at least 79 fraudulent loan applications on their behalf in exchange for a 25% share of the loan proceeds. To date, 25 people have been charged in the Northern District of Ohio, Southern District of Florida, and Middle District of North Carolina for their participation in this scheme.
Of these, 20 have been convicted, either through trial or by plea, including former NFL player Joshua Bellamy who pleaded guilty in the Southern District of Florida on June 9, 2021 to conspiracy to commit wire fraud. Bellamy, who admitted that he paid Stote more than $311,000 for his assistance in preparing and submitting the fraudulent loan application, obtained a PPP loan of $1,246,565 for his company, Drip Entertainment LLC, using falsified documents and false information. On December 10, 2021, Bellamy was sentenced to 37 months in prison.3
Others who have been convicted as part of this scheme include a Florida woman, who was sentenced on December 9, 2021 to two years in prison for fraudulently obtaining a $415,232 PPP loan for her company using falsified documents and false information. Yashica Bain pleaded guilty in the Southern District of Florida to conspiracy to commit wire fraud, including paying more than $28,000 to Stote for his assistance in preparing and submitting the fraudulent loan application.4
On December 16, 2021, Diamond Smith was sentenced to 20 months after pleading guilty on August 4 in the Southern District of Florida to conspiracy to commit wire fraud, and admitting to fraudulently obtaining two PPP loans totaling $1,134,782, for which he paid more than $250,000 to Stote and Augustin for their assistance in preparing and submitting the fraudulent loan applications.5
On February 1, 2022, another participant in the scheme, Luke Pierre Jr., was sentenced to two years in prison for obtaining a fraudulent PPP loan of $414,675, of which he paid a large portion to co-conspirators, including Stote, who helped obtain the loan.6
On February 3, 2022, Keyaira Bostic, who was found guilty of conspiracy and wire fraud on November 24, 2021 by a federal jury in Fort Lauderdale, was sentenced to 44 months in prison. Bostic fraudulently obtained a PPP loan of $84,515 for her company, for which she paid more than $21,000 to Stote. She also recruited other co-conspirators to the scheme in exchange for kickbacks. Those loan applicants sought more than $3.3 million in fraudulent PPP loans and obtained nearly $2 million in PPP loan proceeds.7
Large-Scale Fraud Cases in California, Texas, and Georgia
Similar large-scale fraud schemes have been charged in other states as well. In California, on November 16, 2021, seven members of a Los Angeles-based fraud ring were sentenced in connection with a scheme to fraudulently obtain more than $20 million in PPP and Economic Injury Disaster Loan (“EIDL”) COVID-19 relief funds. According to court documents and evidence presented at a June 2021 trial, the defendants used dozens of fake, stolen, or synthetic identities to submit fraudulent applications for approximately 150 PPP and EIDL loans. The sentences ranged from 10 months of probation to 6 years in prison.
In Texas, 15 people in two states have been charged with conspiring to submit more than 80 false and fraudulent PPP loan applications by falsifying the number of employees and average monthly payroll expenses of the applicant businesses. A superseding indictment, which was unsealed on December 15, 2021, further alleged that the defendants had laundered some of the fraudulent loan proceeds by writing and cashing more than 1,100 fraudulent paychecks to fake employees.8
On February 1, 2022, the United States Attorney’s Office for the Northern District of Georgia announced that 22 individuals in multiple states across the country had been charged in eight indictments in connection with a fraudulent scheme to obtain approximately $39 million in PPP loans.9 From April 2020 through August 2020, the conspirators allegedly submitted, or assisted in the submission of, PPP loan applications for 22 businesses. As in other similar schemes, two defendants allegedly worked with purported business owners, including fabricating tax documents and other supporting documents to support the requested loan amount, in exchange for a percentage of the funded loan amount as a “success fee” from each purported business owner.
Government Focus on Healthcare Companies and Tax Preparers
In addition to these large-scale “ring” cases, the government has also focused on businesses more likely to have been associated with the types of fraud made possible by the various pandemic relief programs, including both healthcare companies and tax preparers.
On February 1, 2022, in the first case of criminal charges for the intentional misuse of funds distributed from the CARES Act Provider Relief Fund (PRF), a Michigan woman pleaded guilty to stealing government funds designed to aid medical providers in the treatment of patients suffering from COVID-19.10 The defendant, who had previously owned a home health agency in LaPorte, Indiana, which she had closed in early 2020, fraudulently obtained approximately $37,657 designated for the medical treatment and care of COVID-19 patients.
On January 13, 2022, a Florida man pleaded guilty in the Southern District of Florida to a $6.9 million conspiracy to defraud Medicare by paying kickbacks and bribes to obtain doctors’ orders for medically unnecessary lab tests that were then billed to Medicare. The defendant admitted that he had bundled COVID-19 testing with other forms of testing that patients did not need, including genetic testing and tests for rare respiratory pathogens.11
On January 4, 2022, a judge sentenced a Georgia woman to 41 months in prison for her scheme to fraudulently obtain more than $7.9 million in PPP loans.12 The defendant, who pleaded guilty in August 2021 to bank fraud, submitted six fraudulent PPP loan applications for Georgia Nephrology Physician Associated, United Healthcare Group & Co., Nephrology Network Group LLC, First Corporate International, Corkrum Consolidated Inc., and Kiwi International Inc. The defendant, who lied about the number of employees and payroll expenses for these businesses and supported the fraudulent applications with fraudulent tax records, bank statements, and payroll reports, obtained more than $6 million.
On November 18, 2021, a federal jury convicted a Seattle physician of multiple counts of wire fraud, bank fraud, and money laundering based on his submission of several fraudulent PPP and EIDL loan applications in the names of businesses with no actual operations or by otherwise misrepresenting the business’s eligibility.13 By falsifying the number of employees and payroll expenses and concealing his criminal history, the defendant fraudulently obtained more than $2.8 million in funds.
On November 9, 2021, an owner of multiple diagnostic testing laboratories was sentenced in the Southern District of Florida to 82 months in prison for a scheme to defraud the United States and to pay and receive kickbacks through exploiting regulatory waivers put in place to ensure access to healthcare during the COVID-19 pandemic.14 The defendants took advantage of these waivers by using telehealth providers to authorize thousands of medically unnecessary cancer and cardiovascular genetic testing orders in exchange for access to beneficiary information and the opportunity to bill for purported telehealth consultations with Medicare recipients, which often did not take place.
In another case of fraudulent laboratory testing, on November 2, 2021, a federal grand jury in the Western District of Arkansas charged an Arkansas man with 16 counts of healthcare fraud and one count of engaging in a monetary transaction in criminally derived property in connection with the submission of over $100 million dollars in false billings for urine drug testing, COVID-19 testing, and other clinical laboratory services that were medically unnecessary, not ordered by medical providers, and/or not provided as represented.15
Finally, given the nature of the information required in the PPP loan application, it is not surprising that a number of recent prosecutions have focused on tax preparers.
On November 23, 2021, a Florida tax preparer was charged in the Eastern District of Pennsylvania with a fraudulent scheme to obtain more than $7 million in PPP loans, EIDL loans, and pre-pandemic Small Business Administration loans, and to launder the proceeds.16 The defendant allegedly conspired with at least eight California-based individuals to apply for loans their respective businesses that were dormant companies or companies with limited business operations by making the businesses appear to be functioning companies by creating fake documents, including fake bank statements and fictitious tax documents.
On November 17, 2021, a judge in the Southern District of Florida sentenced a tax preparer to two years in prison in connection with a scheme to fraudulently obtain over 100 COVID-19 PPP loans.17 The defendant, who owned a tax-preparation business, submitted approximately 118 fraudulent PPP loan applications for more than $2.3 million in PPP funds on behalf of himself and his accomplices. On each loan application, the defendant falsified the applicant’s prior-year sole proprietorship income and expenses and submitted fraudulent IRS tax forms, to obtain approximately $900,000 in PPP loans.
Conclusion
While the government continues to pursue individual cases, a growing number of prosecutions have focused on more sophisticated large-scale “rings” or conspiracies, cases involving the healthcare sector applicants, and the tax preparers or others whose services may have been needed to support the applications for PPP loans and other pandemic relief funds.
[1] https://www.justice.gov/opa/pr/two-charged-rhode-island-stimulus-fraud; https://www.justice.gov/opa/pr/texas-man-charged-5-million-covid-relief-fraud; https://www.justice.gov/opa/pr/hollywood-film-producer-charged-17-million-covid-relief-fraud; https://www.justice.gov/opa/pr/software-engineer-charged-washington-covid-relief-fraud.
[2] https://www.justice.gov/opa/pr/two-florida-men-plead-guilty-35-million-covid-19-relief-fraud-scheme.
[3] https://www.justice.gov/opa/pr/former-nfl-player-sentenced-more-three-years-prison-covid-19-relief-fraud.
[4] Id.
[5] https://www.justice.gov/opa/pr/two-florida-men-plead-guilty-35-million-covid-19-relief-fraud-scheme.
[6] https://www.justice.gov/opa/pr/two-florida-residents-sentenced-prison-covid-19-relief-fraud.
[7] Id.
[8] https://www.justice.gov/opa/pr/four-charged-35-million-covid-19-relief-fraud-scheme.
[9] https://www.justice.gov/usao-ndga/pr/22-people-charged-connection-multi-million-dollar-paycheck-protection-program-fraud.
[10] https://www.justice.gov/opa/pr/woman-pleads-guilty-misappropriating-funds-care-covid-19-patients.
[11] https://www.justice.gov/opa/pr/lab-owner-pleads-guilty-69-million-genetic-testing-covid-19-testing-fraud-scheme.
[12] https://www.justice.gov/opa/pr/georgia-woman-sentenced-41-months-covid-19-fraud-scheme.
[13] https://www.justice.gov/opa/pr/seattle-doctor-found-guilty-fraudulently-obtaining-millions-dollars-covid-19-relief-programs.
[14] https://www.justice.gov/opa/pr/laboratory-owner-sentenced-82-months-prison-covid-19-kickback-scheme.
[15] https://www.justice.gov/opa/pr/arkansas-man-charged-100-million-covid-19-health-care-fraud-scheme.
[16] https://www.justice.gov/opa/pr/florida-tax-preparer-charged-connection-7-million-loan-fraud-scheme.
[17] https://www.justice.gov/opa/pr/tax-preparer-sentenced-covid-19-fraud-scheme.
