The United States of America filed criminal complaints against two businessmen in the United States District Court for the District of Rhode Island. The defendants are charged with conspiring to seek forgivable Payroll Protection Program loans guaranteed by the Small Business Administration under the CARES Act. According to supporting affidavits submitted by a Special Agent of the Federal Bureau of Investigation assigned to the FBI’s White Collar Squad, from April 6, 2020 through April 27, 2020, the defendants fraudulently sought PPP loans claiming to have dozens of employees earning wages in four different entities when, in fact, there were little to no employees working for any of the businesses. PPP loan applications seeking an aggregate of $543,959 were submitted to BankNewport.
Acting on information provided by a complaining witness to local law enforcement, the FBI served on April 24, 2020 a search warrant on Google for documents relating to three email accounts tied to the defendants. Google produced email communications to and from these accounts revealing evidence that the two defendants were conspiring to fraudulently obtain PPP loans. An FBI agent, posing as a compliance officer with BankNewport, engaged in a recorded telephone call with a man believed to be one of the defendants. The FBI agent’s affidavit states: “Finally, in an ironic twist, ‘G.S.’ complained about the reports of large businesses being able to obtain SBA loans under the Paycheck Protection Program, saying that ‘the whole thing has become a little bit of a sham.’”
Rhode Island tax authorities provided information to the IRS of having no records of employee wages having been paid by one of the applicants, and interviews of several persons claimed to be employees reported they had never worked for the entity. An IRS Agent reviewed bank records relating to an account for one of the businesses which revealed no payments appearing to be employee salaries.
The defendants are the first individuals in the nation charged with allegedly defrauding the SBA Payroll Protection Program. The following statements were included in a press release issued by the U.S. Attorney’s Office for the District of Rhode Island:
“Tens of millions of Americans have lost their jobs and have had their lives thrown into chaos because of the coronavirus pandemic. It is unconscionable that anyone would attempt to steal from a program intended to help hard working Americans continue to be paid so they can feed their families and pay some of their bills,” said U.S. Attorney Aaron L. Weisman for the District of Rhode Island. “Attorney General Barr has directed all U.S. Attorneys to prioritize the investigation and prosecution of crimes related to coronavirus and COVID-19, and we are doing just that.”
“Every dollar stolen from the Paycheck Protection Program comes at the expense of employees and small business owners who are working hard to make it through these difficult times,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “The Criminal Division is committed to working with our law enforcement partners to root out abuse of the important relief programs established under the CARES Act.”
“As alleged, David Staveley and David Butziger tried to capitalize on the coronavirus crisis by conspiring to fraudulently obtain more than half a million dollars in forgivable loans that were intended to help small businesses teetering on the edge of financial ruin,” said Special Agent in Charge Joseph R. Bonavolonta of the FBI’s Boston Field Office. “Thankfully we were able to stop them before taxpayers were defrauded, but today’s arrests should serve as a warning to others that the FBI and our law enforcement partners will aggressively go after bad actors like them who are utilizing the COVID-19 pandemic as an opportunity to commit fraud.”
J. Michael Vaughn, Shareholder, Enterprise Counsel Group.