Defendants plead guilty to pandemic-related fraud
TEXARKANA, Texas — A Maud man pleaded guilty in a Texarkana federal court Friday to wire fraud charges related to funds meant to help small businesses through the COVID-19 pandemic.
Samuel Morgan Yates, 34, submitted two fraudulent applications for funds through the Paycheck Protection Program authorized by the federal Coronavirus Aid, Relief and Economic Security Act enacted by Congress in late March 2020. Yates falsely claimed that he needed the funds for his business, Lone Star Tuning.
“Lone Star Tuning was a sole proprietorship located in Maud, Texas. Defendant Samuel Morgan Yates was the 100% owner of Lone Star Tuning, and its business address was located at his residence. Lone Star Tuning had no operations prior to January 2020 and generated no revenue,” the indictment states.
Yates applied for millions in funds from the PPP program and received more than $500,000 in an account he maintained at
a credit union in Texarkana, according to records.
“According to court documents, on April 14, 2020, Yates submitted two fraudulent applications to two different lenders fraudulently seeking more than $5 million in forgivable loans guaranteed by the SBA under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In the application submitted to the first lender, Yates sought $5 million in PPP loan proceeds by fraudulently claiming to have over 400 employees with an average monthly payroll of more than $2 million. In the second application, Yates claimed to employ over 100 individuals and was able to obtain a loan over $500,000. With each application, Yates submitted a list of purported employees that he obtained from a publicly available random name generator on the internet. He also submitted forged tax documents with each application,” states a press release issued by the Assistant U.S. Attorney’s Office in the Texarkana Division of the Eastern District of Texas.
Yates has agreed to forfeit the $504,715.40 seized from an account he held at a
Texarkana credit union as well as an additional $28,500.60, according to a factual basis document filed Friday.
Yates appeared Friday with Texarkana lawyer Jeff Harrelson before U.S. Magistrate Judge Caroline Craven. Assistant U.S. Attorney Jonathan Hornok appeared for the government.
Yates will return to court for sentencing after a presentence report has been received by the court. Yates faces up to 20 years in federal prison.
Clifton Pape and Sally Jung
Clifton Pape, 47, pleaded guilty to wire fraud at a hearing last week in Texarkana before Craven. His co-defendant, Sally Jung, 59, pleaded guilty Friday.
Pape and Jung, both of Cleveland, Texas, operated their scheme through a business called My Buddy Loans, according to a criminal complaint.
In exchange for a sizable fee, Pape’s and Jung’s telemarketing scheme involved using personal information from victims who believed they were applying for an agricultural grant. Instead of filing grant applications, Pape and Jung filed fraudulent Economic Injury Disaster Loan applications with the Small Business Administration using the victims’ personal data.
EIDL funds authorized under the coronavirus relief package were meant to help small businesses with employees.
“The EIDL applications contained false, material information, including that each victim employed ten or more employees and was thus eligible for a $10,000 EIDL Advance. Based on these fraudulent applications, the SBA issued more than $1.56 million in EIDL Advances to people who were not eligible,” according to a factual basis document filed in Pape’s case.
“This investigation closed down one of the largest COVID fraud schemes in the country in terms of the number of fraudulent EIDL applications,” said U.S. Attorney Brit Featherston in a press release Friday. “Well intended and needed economic assistance (taxpayer dollars) was brazenly stolen from legitimate deserving applicants. We are asking those with information about the My Buddy Loan fraud scheme, including those who believe they may be victims, to call the Department of Justice’s National Center for Disaster Fraud Hotline at 866-7205721 or file a complaint using the NCDF Web Complaint Form at https://www.justice. gov/disaster-fraud/ncdf-disaster-complaint-form.”
Pape and Jung agreed to forfeit more than $500,000 seized from a bank account they controlled and have agreed to a money judgment of more than $175,000.
Pape and Jung face up to 30 years in federal prison at sentencing.