Criminal Charges Allege Fraudulent Claims Under CARES Act

Paycheck protection program application for small business payroll support from federal government stimulus bill during Covid-19 coronavirus pandemic

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 29, 2020, and has provided more than $2 trillion in economic relief to help Americans cope with the COVID-19 pandemic. The Act originally authorized up to $349 billion in forgivable loans to small businesses through the Payroll Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. Congress later authorized an additional $321 billion.

Under the PPP, businesses could apply for funding under the Small Business Administration (SBA) to cover payroll expenses, overhead, and to hire back employees who were laid off during coronavirus shutdowns. To be eligible for PPP, businesses needed to establish compliance with various rules including requirements that funding be used for payroll costs and other business-related expenses.

Through the EIDL program, businesses could apply for up to $2 million in loan funds to pay debts, payroll, and other expenses. The loans were to be repaid over 30 years.

In July 2020, the SBA Office of the Inspector General (OIG) released a report that cited “strong indicators of widespread potential fraud” in applications for pandemic relief under the CARES Act.

The United States Department of Justice (DOJ) partnered with other law enforcement agencies, including the SBA OIG, the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS), the U.S. Postal Inspection Service, the Federal Deposit Insurance Corporation (FDIC) OIG, the U.S. Secret Service, and local law enforcement to monitor fraud investigations.

DOJ Targeting EIDL and PPP Fraud

The DOJ and its partners have aggressively monitored PPP and EIDL applications for potential fraud, and have brought criminal charges against people they believe fraudulently obtained or misused benefits received under the CARES Act. Bloomberg Businessweek suggested that there had been more than $1 billion in EIDL aid distributed to “phantom companies.”

The government is currently targeting two types of cases: (1) individuals and small groups who claimed to need CARES funds for legitimate business purposes but instead used them to purchase luxury items; and (2) coordinated groups who allegedly stole large sums of money from federal loan programs.

The DOJ has relied on tips from major financial institutions to trigger investigations into possible cases of EIDL and PPP fraud. Indicators of suspicious activities include:

  • Accounts established using stolen identities
  • Account holders who are unable to explain the origins of deposits or identify business names on loans
  • Account holders claiming to use funds to open a business
  • Account holders who transfer funds into investment accounts
  • Account holders who attempt to transfer funds to foreign accounts
  • Loan deposits made into accounts that were established remotely just prior to receiving the funds, with no other account activity
  • Account holders who try to withdraw loan funds in cash or transfer the funds to newly established accounts
  • Funds being deposited into personal accounts with no history of business activity

To avoid prosecution, businesses that have received funding under the CARES Act should take care to closely comply with the terms of the loan. Expenditures for non-business purposes are likely to trigger an investigation.

Common Activities Leading to Allegations of CARES Act Fraud

Criminal complaints allege that individuals applying for EIDL and PPP funds submit multiple applications that contain false or misleading statements about their business operations and payroll expenses, and submit fake documents, including falsified federal tax filings, in support of these applications.

Others claim that people have obtained loans based on personal expenses, such as for purchases of securities, for home improvements, and personal vehicles.

In still other cases, the government has alleged that people applied for unemployment benefits to which they were not entitled, or created fictitious companies to obtain EIDL and PPP benefits.

Criminal charges arising out of CARES Act loan programs have included wire fraud, bank fraud, money laundering, and conspiracy. People targeted for allegations of CARES Act fraud often face multiple charges.

Defense Against Charges of Wire Fraud, Bank Fraud, and Money Laundering

To convict someone of wire fraud, the prosecution must prove, beyond a reasonable doubt, that the defendant participated in the scheme with knowledge and intent to commit fraud.

Good faith is one of the best defenses against a charge of wire fraud. If a defendant honestly believed that their actions were legitimate, they may be able to avoid a conviction for wire fraud.

Money laundering statutes are very broad and can cover any type of financial activity that is intended to conceal or promote illegal activity. To succeed, the prosecution must prove that a defendant knowingly engaged in a transaction that promoted or concealed the proceeds of illegal activity.

Hope Lefeber: Your Defense Against Federal Charges of Financial Crimes

If you are under investigation or have been charged with fraud or money laundering based on an application for relief under the CARES Act, you must act quickly to hire an experienced federal criminal defense attorney.

Philadelphia criminal defense lawyer Hope Lefeber has been defending people accused of financial crimes in federal court for more than 30 years. She began her career as an enforcement attorney with the United States Securities and Exchange Commission (SEC) where she learned first-hand how the federal government prepares and prosecutes federal fraud cases. Today, she uses that experience to defend people who have been accused of financial crimes in federal court.

Ms. Lefeber is a fierce defender of her clients’ constitutional rights who meticulously prepares every she handles. Ms. Lefeber has earned a reputation among her colleagues in the federal bar, federal judges, and her clients as an aggressive and effective litigator who vigorously defends her clients against the government’s attempts to convict them.

Ms. Lefeber has defended executives at Fortune 500 Companies, as well as lawyers, doctors, medical professionals, professors, students, and businessmen and women who have been under investigation or charged with financial crimes.

If you are under investigation or have been charged with a federal crime, Hope Lefeber should be your first call. Contact Hope Lefeber today to schedule a confidential consultation to discuss your case and learn how Ms. Lefeber can help.


This article can also be found on our New York City Federal Defense website.