Spotting alleged PPP fraud is about to get much tougher
The criminal complaints read like catalogs of luxury bling: a diamond-laden $52,000 Rolex, a gambling spree at the Bellagio, two Lamborghinis, a pair of Cadillac Escalades, a RollsRoyce. All that and more, law enforcement officials said, was financed through schemes to defraud the federal government’s signature coronavirus relief program for small businesses.
The Justice Department has made at least 41 criminal complaints in federal court against nearly 60 people, who collectively took $62 million from the Paycheck Protection Program by using what law enforcement officials said were forged documents, stolen identities and false certifications.
They are just “the smallest, tiniest piece of the tip of the iceberg,” said Hannibal Ware, inspector general of the Small Business Administration, which led the program.
But with their ostentatious spending and clearly faked records, those alleged thefts have also been the easiest to spot.
The Paycheck Protection Program, a centerpiece of the coronavirus relief bill, poured $525 billion into the economy in just four months before coming to an end. More than 5 million businesses received loans, which could be forgiven if used for payroll and certain other expenses.
Now, that hastily created and frequently chaotic program is entering its next messy stage, one that lenders and government officials expect to take years: the hunt to recapture illicitly obtained cash.
The challenge facing scores of state and federal agencies is enormous. The Small Business Administration’s fraud hotline, which received fewer than 800 calls last year, has already had 42,000 reports about coronavirus-linked
graft.
But many of the cases investigators ultimately pursue will not have telltale clues like expensive watches and Italian sports cars bought by people who said their small businesses were in need of help. Future cases will involve owners who tried to exploit gray areas in the program’s rules or the desperation of their employees.
Several workers told The New York Times that their employers had asked them to repay a portion of their earnings or work for free in the future. That wasn’t allowed under the program’s rules.
Under the initial rules, borrowers who wanted the loans forgiven had to spend most of the money within eight weeks. Those limits frustrated many owners, and some appear to have tried to quietly break the rules, according to the workers, who asked not to be identified to protect their livelihoods.
The owners of a Pilates studio in Manhattan told employees that some instructors — who have been running virtual classes since the city shut down gyms — would be paid extra for a few weeks out of the studio’s loan but that their wages would be garnished after in-person classes re
sumed. Two instructors shared emails with the Times describing the plan, including an all-staff note from the owners that described the payments as “an advance on future work.”
An employee at a speech therapy clinic in Minnesota described how the owner told employees in May that she would use the clinic’s loan to pay them for a 40-hour week — but that if they didn’t have enough client bookings or other projects to fill the time, she would expect them to repay those hours with uncompensated labor later in the year. The boss backed down, the employee said, after the employee consulted a lawyer and told the boss that the plan appeared to be illegal.
And a worker at a dermatology clinic in North Carolina said her boss had used a paycheck program loan to increase the worker’s monthly pay to $7,200 in May — more than she usually made — but then, without warning, began garnishing the worker’s pay the next month. In July, she was asked to sign a document (which she shared with the Times) retroactively agreeing that the money she received had been a loan. To keep her job, she agreed to pay back $250 a month out of her earnings.