DOJ Says Hundreds Charged With COVID-19 Fraud So Far

By Daniel Wilson
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Law360 (March 26, 2021, 7:04 PM EDT) -- The U.S. Department of Justice announced Friday it has charged nearly 500 people so far in relation to more than $569 million in allegedly fraudulent claims made under COVID-19 relief programs, in addition to pursuing related civil fraud cases.

The DOJ has publicly charged 474 people for allegedly defrauding the Paycheck Protection Program, Economic Injury Disaster Loan program and various unemployment insurance programs, the department said in an update on its actions related to the pandemic.

"The impact of the department's work to date sends a clear and unmistakable message to those who would exploit a national emergency to steal taxpayer-funded resources from vulnerable individuals and small businesses," U.S. Attorney General Merrick Garland said in a statement Friday. "We are committed to protecting the American people and the integrity of the critical lifelines provided for them by Congress, and we will continue to respond to this challenge."

Since the passage of the Coronavirus Aid, Relief and Economic Security Act in March 2020, more than 120 defendants have been charged with defrauding the PPP program, which is meant to provide low-interest or forgivable loans for companies to make payroll, the DOJ said.

This includes companies allegedly inflating payroll expenses to get larger loans, fraudsters reviving dormant companies to apply for multiple loans despite having no actual payroll expenses, and "organized criminal networks" submitting identical loan applications and supporting documents for multiple companies, according to the department.

The most egregious examples include Dinesh Sah, a Texas resident who pled guilty on Wednesday to applying for 15 PPP loans across multiple companies, seeking $24.8 million and ultimately securing $17.3 million, which he spent on houses, jewelry and luxury cars, the DOJ said.

For the Economic Injury Disaster Loan program, meant to provide loans to small businesses, agricultural entities and nonprofits, fraudsters have also used fake and shell companies to obtain loans and advances. A task force led by the U.S. Attorney's Office for the District of Colorado has managed to identify and seize $580 million in fraudulent loan proceeds so far, while working to identify specific fraudsters for prosecution, the department said.

And the DOJ has charged more than 140 alleged unemployment insurance fraudsters since the start of the pandemic, while having set up a task force across multiple law enforcement agencies and hiring additional assistant U.S. attorneys to focus on unemployment insurance fraud prosecutions. International organized crime groups have also targeted such programs, according to the announcement.

In addition to the criminal cases, the DOJ will use the False Claims Act and other civil cases to punish coronavirus-related fraud, noting it had reached a settlement in January with online retailer SlideBelts Inc. over false statements made to banks to secure and guarantee a PPP loan. The department said related whistleblower complaints have also been increasing as "unscrupulous actors" try to take advantage of vulnerabilities in COVID-19 relief programs.

Whistleblower FCA cases, which are filed under seal, are likely to start emerging into the open soon. FCA attorneys told Law360 in December that a wave of FCA cases typically follows any sort of large government spending program, with cases often springing into public view a year to 18 months after spending begins.

The DOJ has also gone after COVID-19-related fraud schemes that target consumers, such as fake purported cures for the virus, filing "dozens" of related criminal and civil enforcement actions and shutting down of hundreds of websites facilitating these scams so far, it said.

There are likely to be many more enforcement actions brought over time, with the Small Business Administration's Office of Inspector General saying in several reports over the past year that billions of dollars in PPP and EIDL loans may have gone to ineligible recipients, suggesting that signs of potential fraud were ignored and loans awarded with minimal vetting in the interests of expediency.

A Select Subcommittee on the Coronavirus Crisis report released Thursday by the subcommittee's Democratic staff suggested that potential fraudulent claims across the two programs could be as high as $84 billion — about 9% of all loans issued. But Rep. Jim Jordan, R-Ohio, argued at a related hearing that "over 99% of PPP money got to the correct recipient and has been used appropriately ... a better rate than the private mortgage market."

--Editing by Daniel King.

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