Feds Charge 9 With $24M Virus Relief Loans Fraud Scheme

By Jon Hill
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Law360 (August 6, 2020, 10:47 PM EDT) -- Federal prosecutors on Thursday announced charges against nine Florida and Ohio individuals for allegedly trying to scam the Paycheck Protection Program out of more than $24 million in loans, one of the biggest fraud cases yet involving the coronavirus relief program for small businesses.

In complaints unsealed in Florida and Ohio federal courts, the U.S. Department of Justice alleged the scheme started small in May with a roughly $85,000 fraudulent loan obtained by Phillip J. Augustin, 51, of Coral Springs, Florida, for his talent management company, but grew through recruitment until dozens of bogus applications were being submitted for millions of dollars in PPP loans.

All told, prosecutors said the group sought loans totaling more than $24 million, using fake bank statements and other falsified documents to support applications filed with banks across the nation. Lenders went on to approve nearly four dozen of those applications and pay out more than $17 million, according to federal officials.

"These allegations reflect an organized effort by defendants to defraud the [PPP] on a large scale by stealing funds intended for legitimate small businesses suffering from economic hardships caused by the COVID-19 pandemic," Brian C. Rabbitt, the acting assistant attorney general of the DOJ's Criminal Division, said in a statement.

Rabbit added that the government "will continue to aggressively pursue those who would seek to illegally exploit the ongoing national emergency for their own benefit."

Besides Augustin, the individuals accused of having participated in the fraud ring include Damion O. Mckenzie, 38, of Miami Gardens, Florida, Andre M. Clark, 46, of Miramar, Florida, Keyaira Bostic, 31, of Pembroke Pines, Florida, and Wyleia Nashon Williams, 44, of Ft. Lauderdale, Florida.

Their complaints were unsealed Wednesday, charging them with wire fraud, bank fraud and fraud conspiracy. Augustin was also charged with obstruction.

Those five are in addition to James R. Stote, 54, of Hollywood, Florida, Ross Charno, 46, of Ft. Lauderdale, Florida, Deon D. Levy, 50, of Bedford, Ohio, and Abdul-Azeem Levy, 22, of Cleveland, Ohio, who were previously charged with fraud and conspiracy in June complaints alleging their involvement.

In dollar terms, the purported scheme is among the largest alleged to date by federal prosecutors investigating fraud in connection with the PPP, which was launched in April as part of the federal government's efforts to limit the economic damage caused by the coronavirus pandemic.

The $660 billion program allows small businesses to take out federally guaranteed loans of up to $10 million each for use on payroll and overhead expenses, but its relatively lax borrower eligibility requirements and offer of full loan forgiveness have made the program an attractive target for fraud.

According to the complaints, Augustin worked with another unnamed individual to get the initial fraudulent PPP loan for his company, Clear Vision Music Group. That person, who is identified as "CHS 2" in the complaints and is now cooperating with investigators, whipped up sham payroll and other documentation for the application and eventually did the same for others, becoming the scheme's "operational center," the government said.

Augustin, meanwhile, recruited more applicants by tapping his network from managing professional football players and brought in Williams to help coordinate, the government said. Bostic, Mckenzie and the other defendants are alleged to have become involved during this phase of the scheme, applying for PPP loans for their own companies and recruiting still more participants, according to the complaints.

The actual work of the fraud isn't alleged to have been particularly sophisticated. The government said, for example, that the defendants submitted "nearly identical" fake bank statements with applications for multiple companies and that the payroll documents accompanying a number of applications bore telltale signs of fraud.

Perhaps unsurprisingly, the government said lenders wound up rejecting many of the sham loan applications that were filed as part of the scheme. But at least 42 PPP loans totaling $17.4 million were allegedly approved and funded, setting up the defendants to receive kickbacks from this money to the tune of nearly $1 million for Augustin alone, according to the complaints.

The government did not name the banks that were purportedly duped into approving the PPP loans. Augustin's cooperating co-conspirator, CHS 2, was arrested in late June, and the scheme appears to have unraveled from there, according to the complaints, which indicated that two other people involved in the scheme are also working with investigators.

When authorities searched the homes of two of those cooperators, the government said they "seized paper files for PPP loan applications for approximately 80 different entities."

In a statement on Thursday, the top watchdog at the Small Business Administration, which runs the PPP, called the alleged actions of the defendants "reprehensible" and pledged to continue monitoring the program closely for abuse.

"[The SBA's Office of the Inspector General] will aggressively pursue fraud in the PPP and other SBA programs aimed at assisting the nation's small businesses during the pandemic," Inspector General Hannibal "Mike" Ware said.

The government is represented by Philip Trout of the DOJ's Fraud Section, Elliot Morrison of the U.S. Attorney's Office for the Northern District of Ohio and David Turken of the U.S. Attorney's Office for the Southern District of Florida.

Counsel and contact information for the defendants was not immediately available.

--Editing by Janice Carter Brown.

For a reprint of this article, please contact reprints@law360.com.

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