Spotting $62 Million in Alleged P.P.P. Fraud Was the Easy Part

The arrests started just weeks after the program began in April.

In one case, a Texas man with convictions for forgery and robbery sought loans from six lenders using shell companies with no employees and, in one application, the stolen identity of a wine-shop owner who died in April. He collected $1.6 million and spent hundreds of thousands of dollars on booze, nightclubs, a Rolex and a 2019 Lamborghini Urus, according to the complaint filed against him in federal court in Houston.

Other plots were more complex. In the largest criminal case so far, nine people in Florida and Ohio are accused of paying kickbacks to recruit participants in what was essentially an assembly line for fraud. At one house, investigators said, they found stacks of loan paperwork for more than 80 businesses, filled with forged documents and false claims about the size of the businesses’ payrolls. Banks rejected many of the applications, according to court documents, but at least 42 were successful, netting the defendants more than $17 million.

Lenders said the flurry of indictments were a sign that oversight was working. “The fact that a loan was funded and money was transferred did not necessarily end the scrutiny on that loan,” said David Patti, a spokesman for Customers Bank, which made $5 billion in loans for the program. “There are plenty of investigations going on with many lenders.

In addition to investigations of misused money, lawyers and lenders said, there will be investigations into companies taking loans they didn’t need — a murky area.

In its formal guidance, the Treasury Department said borrowers must be able to show that they could not get access to other loans or cash sources in a way that was “not significantly detrimental to the business.”

“It’s a really gray standard,” said Tyler Woods, a lawyer in Irvine, Calif., who has worked with corporate clients on their Paycheck Protection Program loans. He called that line “the big kicker that I think will get a lot of people out of jail.”

A Treasury spokeswoman said the Small Business Administration had 90 days to review forgiveness applications after they were submitted and would make sure that borrowers had complied with all of the program’s rules.

Article source: https://www.nytimes.com/2020/08/28/business/ppp-small-business-fraud-coronavirus.html