High Dollar Pandemic Fraud Offers Lessons for Next Relief Bill

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Lamborghinis, Gucci and jewelry allegedly purchased using pandemic business relief funds highlight the work that awaits law enforcement as Democrats prepare yet another stimulus bill.

Already, the Justice Department has cracked down on dozens of allegedly costly schemes that it says have cost the government $ 142 million. The number of cases is only expected to rise because lawmakers have gone fast with a faltering economy. This means that surveillance must catch up.

“I don’t think anyone would dispute that relief funds were needed and that it was essential to distribute them quickly,” said Sarah Walters, partner at McDermott Will & Emery, who advises PPP fund recipients on issues of conformity. From the outset, it was expected that there would be fraud and the need for an app, she said in an email.

Lessons learned from how the fraud happened with PPP loans can help government officials plug any leaks in the system, said Mark Matthews, a member of Caplin & Drysdale and former IRS and law enforcement official. tax division of the Ministry of Justice.

“Between law enforcement and program changes, you usually start to reduce the rate of fraud,” he said.

The Justice Department has touted several developments in recent days, including a guilty plea by a Virginia-based CEO on Feb. 3 for fraudulently obtaining Paycheck Protection Program loans for his company and two new acts of indictment accusing seven people of committing fraud when they approached the government. discount backed loans on behalf of other businesses or as a purported business owner.

These cases are part of a trend of allegations of fraud arising from the PPP. The first iteration of the program began in April with the CARES law (public law 116-136). It restarted in January with $ 248 billion in new funding from the latest congressional relief bill. The program was designed to keep workers employed in companies that have seen their income decline dramatically.

Nicholas L. McQuaid, acting deputy attorney general of the Department of Justice’s criminal division, said in a statement that the department “will continue to investigate and, where appropriate, prosecute criminal fraud schemes related to criminal justice programs. COVID-19 relief, as well as any crime schemes that target Americans and seek to exploit or take advantage of the legitimate fears and uncertainties arising from the global pandemic. “

What to come

The PPP assistance cases reflect that, in the face of a surge in interest and a faltering economy, the government has mostly focused on getting the money out, said Stu Bassin, founder of the law firm. Bassin PLLC and former litigator for the tax division of the Ministry of Justice.

“There is an inverse relationship between how quickly it comes out of the door and how carefully it is checked,” he said.

The government appeared to anticipate and try to prepare for the problems when it created a watchdog to monitor how the funds were spent, Walters said. This watchdog sent nearly 70 leads of potential fraud to law enforcement, according to a recent report.

The government itself has also faced legal action over how it implemented pandemic relief legislation, particularly on populations it initially barred from receiving impact payments. economic, such as incarcerated persons and spouses of undocumented persons.

The number of fraud cases will likely increase over time as the government is likely to obtain new information on recipients, said Usman Mohammad, lawyer at Kostelanetz & Fink LLP whose practice areas include tax controversy and criminal litigation. federal. He highlighted potential information from loan cancellation requests, reports of suspicious bank activity and whistleblower activity.

House Democrats are figuring out the details of another pandemic aid package. The plan proposed by Biden includes $ 35 billion for financing programs for small businesses.

Application traps

In an alleged scheme involving former NFL player Joshua Bellamy, who was Cut of the New York Jets last fall, a group submitted dozens of fraudulent P3 requests asking for more than $ 24 million. Bellamy himself is said to have secured a loan of over $ 1.2 million, spending some of the money on luxury goods or at the Seminole Hard Rock Hotel and Casino.

Another set of charges alleges that a Texas man fraudulently obtained more than $ 1.6 million from two PPP applications, spending more than $ 200,000 on a Lamborghini Urus.

Most fraud cases to date involve defendants blatantly lying about their eligibility or submitting false documents, Walters said.

More aggressive prosecutions could raise questions, she said. The government always issued guidelines after some loan recipients received the funds, which added to the confusion for businesses and lenders.

“The government will need to proceed with caution in questioning the good faith judgments of recipients about their eligibility when they applied for and received the funding,” Walters said.

There is also the risk that the Department of Justice, while working to protect the integrity of the program, may help to delegitimize the program if the only message the public hears is fraud. This could make it more difficult to implement similar programs, said Brian Galle, a Georgetown law professor who previously worked in the Justice Department’s tax division.

He wished the ads were contextual, saying something like, “We caught these bad guys, they tried to take $ 100 million, but we caught them and we delivered $ 100 billion that wasn’t fraudulent.” To our knowledge. ‘”

“With help from David Hood.

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