Over the past two years, the United States seized more than 1.2 billion dollars in relief funds fraudulently obtained through the PPP and EIDL programs.2 Currently, there are more than 900 active criminal investigations focused on funds fraudulently obtained from COVID relief programs.3 The Small Business Administration’s (SBA) Office of Inspector General has identified 70,835 PPP loans totaling over 4.6 billion dollars that were potentially fraudulent.4 Recent investigations provide that financial technology companies and their lending partners constituted 75% of the PPP loans connected to fraud as identified by the Department of Justice (DOJ).5 The question is what constitutes fraud and exactly what type of acts does the United States government identify and subsequently prosecute as fraudulent? As you can imagine, the answer is not that simple.
In general, the Internal Revenue Service (IRS) defines fraud as deception by misrepresentation of material facts, or silence when good faith requires expression, which results in material damage to those who rely on it and/or have the right to rely on it.6 Put succinctly, fraud is obtaining something of value from someone else through deceit or manipulation.7 Although this provides some much needed clarity regarding what constitutes fraud, it does not provide a direct example of what acts the IRS and/or United States government is identifying as fraud and therefore worthy of investigation and/or prosecution. As such, a review of the cases that have been recently prosecuted illustrates specific acts that constitute fraud in this context. To that end, the following cases are a helpful representative sample:
- On or about May 9, 2022, in the Eastern District of California, Aaron Ashcraft pled guilty to one count of wire fraud and one count of bank fraud in a scheme allegedly intended to defraud the PPP of over 1.2 million dollars in COVID-19 relief loans. In this context, the loan applications allegedly falsely claimed employees and monthly payroll expenses that otherwise did not exist. As of the date of this article, Mr. Ashcraft had not been sentenced but was facing up to twenty (20) years in prison and a $250,000 fine for wire fraud and up to thirty (30) years in prison and a one (1) million dollar fine for bank fraud.8
- On or about August 1, 2022, in the Southern District of Ohio, Adesh Bissoon was sentenced to eight (8) years in prison for a fraud scheme allegedly designed to obtain COVID-19 relief funds. In that regard, Mr. Bissoon allegedly established LLCs using other individuals’ personal identifying information without their consent. He then used those LLCs to apply for and obtain EIDL funding. Mr. Bisson allegedly obtained more than one (1) million dollars in disaster relief funds through the aforementioned applications.9
- On or about January 6, 2022, in the District of Nevada, Luigi Montes, Alexander Rivera, and Peter Stincer were charged for allegedly conspiring in an attempt to fraudulently apply for and receive approximately $900,000 in unemployment insurance benefits to which they were not eligible. The alleged perpetrators obtained identifying information of other people’s names through phishing to effectuate the fraud. If convicted, each defendant faces a statutory maximum penalty of twenty-six (26) years in prison.10
- On or about May 26, 2022, in the District of Oregon, Alfred Nevis was charged with allegedly fraudulently obtaining over 1.5 million dollars in EIDL loans. According to the court’s documents, from April 1, 2020, through at least August 6, 2020, Mr. Nevis is alleged to have used the identities of multiple individuals known to him, including current and former employees, business associates, and their spouses, to illegally apply for and obtain EIDLs. To facilitate his scheme, Mr. Nevis used the stolen identifiers to register straw corporations, obtain employer identification numbers from the IRS, and submit loan applications to the SBA on behalf of the newly registered corporations. Mr. Nevis faces a maximum sentence of thirty-two (32) years in prison and fines up to $500,000.11
- On or about June 8, 2022, in the Southern District of Ohio, Ava Misseldine allegedly fraudulently obtained over one (1) million dollars in PPP loans by using fake identities and forged business documentation. In that regard, Ms. Misseldine allegedly used identity documents in both her real name and her fake names to apply for and obtain PPP loans. Thereafter, Ms. Misseldine used those funds to purchase personal residences for $647,500 and $327,500, in two different states. If convicted, Ms. Misseldine faces a mandatory minimum of two years and up to thirty (30) years in prison.12
- On or about January 25, 2022, in the District of Oregon, Benjamin Tifekchian pled guilty to bank fraud after allegedly stealing COVID-19 relief funds.13 According to court documents, Mr. Tifekchian applied for EIDL through the SBA in April and August of 2020. During the application process, Mr. Tifekchian allegedly falsely claimed that his company had generated as much as $758,000 in revenue and had been in operation for over twenty (20) years and employed twelve (12) people. The SBA denied his application; however, in June of 2020, Mr. Tifekchian obtained more than $884,000 in PPP funding after falsely claiming he employed seventy-eight (78) people and had an average monthly payroll of $353,698. Mr. Tifekchian used the PPP funds to pay for gambling, vacations, and other personal expenses. Mr. Tifekchian faces a maximum sentenced of thirty (30) years in prison, a one (1) million dollar fine and five (5) years of supervised release.14
The foregoing cases are not an exhaustive list of the matters currently being investigated or prosecuted by the United States government; however, a careful review of these cases provides a blueprint of the acts the government considers to be fraudulent and thus worthy of prosecution. More to the point, within the cases identified above, a pattern emerges; specifically, there are at least three identifiable categories of actions which resulted in investigation and/or prosecution:
- Falsification of Business Records: the fabrication and/or falsification of business records including a company’s gross revenue, employee head count, and/or monthly payroll expenses has led to investigation and/or prosecution.
- Sham Transactions: stealing individuals’ identities or creating fake businesses also led to investigation and/or prosecution.
- Misuse of Relief Funds: spending funds on personal expenses such as personal mortgages, vacations, and gambling led to criminal investigations and/or prosecution.
*Please also note, it appears that individuals with a history of malfeasance as it relates to the government have an increased likelihood of criminal prosecution and/or investigation in the COVID-19-relief fraud context.
In conclusion, the investigation and/or prosecution of COVID-19 relief funds obtained fraudulently is currently a focal point of the United States government and is unlikely to dissipate in the near future. Accordingly, it is imperative that if you have received correspondence regarding the eligibility of PPP or EIDL funding, you should consult with a professional to discuss your options and to identify the best path forward. If companies and individuals which already applied for and received COVID-relief funding have not yet conducted due diligence to ensure those funds were properly received, used, and potentially forgiven, contact our team at (410) 497-5947 or you can use our brief contact form to schedule a consultation.