WASHINGTON - A multi-hundred-billion-dollar U.S. government loan program created for small businesses suffering during the coronavirus pandemic has become a magnet for all manner of fraudsters, according to federal authorities.
A Texas man has been accused of using an online random name generator to create a list of hundreds of employees and apply for $5 million from the program.
A reality TV personality in Georgia is charged with obtaining a $2 million loan to buy a Rolls-Royce and a Rolex watch, among other luxury items.
And a Hollywood producer is alleged to have taken out a $1.7 million loan to pay off credit card debt and other personal expenses.
Created by Congress in late March as part of the U.S. government’s $2 trillion response to the coronavirus, the Paycheck Protection Program provides forgivable loans to small businesses to help them keep employees on the payroll throughout the crisis.
To date, the $650 billion program has made 4.4 million loans for a total of $511 billion and it is still accepting loan applications, according to a spokeswoman for the Small Business Administration, which runs the program.
With so much money being thrown at distressed businesses in rapid fashion, experts have been sounding the alarm about the potential for fraud.
While the exact scale of the fraud remains unknown, in just a few weeks the Justice Department has charged seven individuals with defrauding or attempting to defraud the program.
In the Texas case, Samuel Yates, 32, is accused of making two different fraudulent loan applications.
In one, Yates claimed to employ more than 400 workers, with an average monthly payroll of $2 million. In the other, he purported to have more than 100 employees and was able to receive more than $500,000.
To support his loan applications, Yates submitted a list of employees he had created using an online random name generator, according to court documents.
Yates was charged with wire fraud, bank fraud and making false statements to financial institutions and to the Small Business Administration.
“These individuals have no concern for legitimate businesses whose employees and their families are hurting financially during these unprecedented times,” said Ryan Spradlin, special agent in charge of Homeland Security Investigations in Dallas, one of the agencies that investigated the case.
In Georgia, Maurice Fayne, who goes by “Arkansas Mo” on a VH1 reality show, was charged last month with similar crimes.
In a loan application for nearly $4 million, Fayne claimed to own a business called Flame Trucking and to employ more than 100 people on an average payroll of $1.5 million. In fact, he had no employees.
Fayne nonetheless received a loan for more than $2 million and within days used it to buy $85,000 in jewelry, including a Rolex Presidential watch, a diamond bracelet and a 5.73-carat diamond ring, and to pay $40,000 in child support, according to court documents.
During a search of Fayne’s residence, agents found the jewelry, $80,000 in cash and a 2019 Rolls-Royce Wraith with a temporary dealer tag, court documents show. Fayne was charged with bank fraud.
“The defendant allegedly stole money meant to assist hard-hit employees and businesses during these difficult times, and instead greedily used the money to bankroll his lavish purchases of jewelry and other personal items,” Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, said in a statement announcing Fayne’s arrest.
The Hollywood producer, William Sadlier, 66, allegedly claimed in bank applications that the funds would be used for payroll and other expenses at three film production and distribution companies. Yet, as soon as he received the loan, he allegedly began using it to pay off personal credit card debts of more than $80,000 and a car loan of about $40,000, according to court documents.
Since the start of the coronavirus outbreak, the Justice Department has prioritized investigating criminal activity related to the pandemic, including fraud, price gouging and hoarding of critical supplies. In a March 24 memo to the heads of federal law enforcement agencies, Attorney General William Barr warned that the department would “not tolerate bad actors who treat the crisis as an opportunity to get rich quick.”
It is not just the Justice Department investigating fraud related to the loan program. In probing loan scams, the department has been working closely with a variety of other federal law enforcement agencies.
The speed with which federal prosecutors have brought charges in otherwise time-consuming investigations suggests more are in the pipeline even as the program winds down, said Michael Licker, a partner at the law firm of Foley Hoag, who has been following the issue.
“Whether that’s in the dozens, 50 or 100, I think time will tell,” Licker said.
Peter Carr, a Justice Department spokesman, said the department’s investigations into PPP loan fraud were ongoing.