Wisconsin Men Charged with Stealing $1 Million from COVID-19 Paycheck Protection Program

The Department of Justice is pursuing federal charges against three men from Wisconsin and two from Illinois who have been accused of committing fraud in connection with the federal Paycheck Protection Program (PPP). According to the federal indictment, unsealed on October 22, the defendants fraudulently applied for and attempted to secure more than $1.1 million in PPP funds meant to provide financial relief for small businesses struggling to stay afloat during the coronavirus pandemic, and then moved the money around in an attempt to conceal its origin. The defendants were charged with bank fraud and money laundering in a federal indictment filed in the Eastern District of Wisconsin, for their alleged participation in a scheme to defraud the COVID-19 relief program.

57 Charged with COVID-19 Loan Fraud Across U.S.

This indictment is the latest in a wave of federal indictments and criminal complaints against individuals accused of stealing or attempting to steal millions of dollars in PPP loans backed by the Small Business Administration (SBA). As many as 57 people are already facing PPP fraud charges representing $175 million in PPP funds allegedly obtained by fraud. To date, the government has been able to recover or freeze more than $30 million, and as Acting Assistant Attorney General Brian Rabbitt stated at the PPP Criminal Fraud Enforcement Action Press Conference in September, “we expect to add to that total in the future as we seize additional funds and liquidate assets purchased with PPP funds.”

Defendants Fraudulently Obtained PPP Funds, Authorities Allege

The defendants named in this latest federal indictment are Stephen Smith, 42, of Milwaukee, Wisconsin (registered agent of CFA Auto Transport LLC and Complete Fundamentals, Inc. and organizer of New Beginnings Family Services LLC), Thomas Smith, 46, of Milwaukee, Wisconsin (registered agent of T&T Holdings LLC), and Robert Hamilton, 59, of Milwaukee, Wisconsin (president and registered agent of Glory Transportation Services LLC), as well as Samuel Davis Jr., 40 (registered agent and president of Davis Development Group Inc.), and Jonathan Henley, 52 (manager and registered agent of Premier Logistic Solutions LLC), both of Chicago, Illinois. Also included in the indictment are three unidentified Wisconsin residents with connections to Rebels Paris, LLC, Comfort Care Transit LLC and New Beginnings.

“The indictment alleges that the defendants submitted several fraudulent PPP loan applications to a federally insured financial institution and the SBA in the names of businesses with no actual operations or employees,” states a Department of Justice press release issued on October 22, explaining the charges. “In the applications, the defendants allegedly misrepresented the number of employees and payroll expenses. To support the fraudulent applications, the indictment alleges that the defendants submitted fake tax documents. The defendants are alleged to have fraudulently sought over $1.1 million in PPP loan funds.”

According to the indictment, the defendants all opened accounts at a financial institution in Green Bay and applied for PPP loans through the same institution, claiming that they were in need of PPP funds to pay their employees and cover payroll costs during COVID-19. The applicants claimed that they had between 14 and 38 employees and between $62,000 and $97,000 in monthly payroll costs between them. In truth, the businesses were not active and did not have any actual employees. Once the defendants received the PPP funds through fraudulent means, they began withdrawing the funds using cashier’s checks written out for amounts ranging from $20,000 to $75,000, officials allege. They then deposited the checks in different accounts at the same Green Bay financial institution, as well as at a bank in Minneapolis and a credit union in Racine.

The CARES Act and Paycheck Protection Program

The ongoing coronavirus crisis has had far-reaching and long-lasting consequences that extend far beyond the rapid spread of the virus and the country’s continuing efforts to contain it. The economic shutdown resulting from the COVID-19 outbreak shuttered businesses across the U.S. and left millions of Americans without work, which created unprecedented challenges for a country already devastated by an enormous loss of human life.  

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was a federal law enacted in March to provide emergency financial relief to Americans experiencing the economic fallout of the COVID-19 pandemic. At the center of the CARES Act was the Paycheck Protection Program, a $650 billion loan program administered through the SBA and local financial institutions. The PPP program provided potentially forgivable loans to small businesses hit hard by the pandemic, to cover payroll costs and certain other business expenses. “One source of relief provided by the CARES Act is the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses through the PPP,” states the Justice Department press release. “In April 2020, Congress authorized over $300 billion in additional PPP funding.”

The Paycheck Protection Program allowed small businesses and other financially strained organizations to obtain loans with a maturity of two years and an interest rate of 1%, so long as the businesses used the funds for payroll costs and legitimate business expenses, including interest on mortgages, utilities, and rent and lease payments. Furthermore, PPP loans can be 100% forgiven so long as business recipients use the funds on approved expenses within a set time period and devote a certain percentage of the total loan to retain employees and pay their salaries. The amount of money businesses were entitled to receive under the PPP program was determined by the number of employees the business employed and the business’ average monthly payroll costs.

Fraud Associated with the Paycheck Protection Program

By the time the Paycheck Protection Program closed to new applications in August, more than 5.2 million loans had been approved, totaling more than $525 billion in PPP funds. Unfortunately, with billions of dollars on the table, there was a significant risk of fraud associated with Paycheck Protection Program loans, and in recognizing this fact, the federal government immediately launched a nationwide effort to combat PPP loan fraud. “We set up a team dedicated to PPP fraud, began investigating almost immediately, and brought our first cases within months of the PPP being announced, and while loans were still being made,” stated Rabbitt at the PPP Criminal Fraud Enforcement Action Press Conference last month. He went on to warn anyone who might consider abusing a loan program like the PPP: “You will be identified. You will be held accountable. You will face the severest of consequences for trying to exploit your fellow Americans’ suffering for your own personal gain.”

With the cooperation of several federal investigative agencies, the Department of Justice began an aggressive investigation into allegations of PPP loan fraud within months of the Paycheck Protection Program’s introduction, and federal prosecutors have already brought criminal charges against dozens of people accused of defrauding or attempting to defraud the Paycheck Protection Program. There are two main ways a PPP loan applicant can commit fraud in connection with the PPP program. First, the applicant can overstate or fabricate a need for PPP funds by inflating the number of employees employed by the business or the business’ monthly payroll costs. Second, once the PPP funds are secured, the applicant can use the funds to make personal purchases or for other unauthorized purposes.

Justice Department Promises Swift Action to Combat PPP Fraud

The scope of the federal government’s Paycheck Protection Program fraud investigation is extensive. So far, the Justice Department has brought charges in no fewer than 19 federal districts, and the cases vary greatly in size, ranging from PPP loan requests for as little as $30,000 to as much as $24 million. In another criminal complaint unsealed on October 23, a man from Dade City, Florida was charged with bank fraud and illegal monetary transactions for fraudulently obtaining nearly $2 million in PPP loans and using the funds to purchase a new Mercedes and Ford F-250 pickup truck. In August, seven individuals from Florida and two from Ohio were criminally charged as a result of their alleged participation in a scheme to file fraudulent PPP loan applications seeking more than $24 million in Paycheck Protection Program funds.   

According to the Wisconsin indictment, the defendants allegedly participated in the fraud scheme to “unlawfully enrich themselves by: (a) submitting false and fraudulent PPP loan applications to financial institutions falsely representing that the applicant entities were functional and operational businesses and falsely promising to use the fund proceeds on covered business expenses, and (b) concealing and causing the concealment of these false and fraudulent applications.” In total, the defendants fraudulently obtained at least $960,000 in PPP loan proceeds and attempted to fraudulently obtain an additional $442,500. The case was investigated by the FBI, the SBA’s Office of Inspector General, the Federal Deposit Insurance Corporation OIG, and the IRS Criminal Investigation unit. The case will be prosecuted by Assistant U.S. Attorney Stephen Ingraham of the Eastern District of Wisconsin and Trial Attorneys Laura Connelly and Leslie S. Garthwaite of the Criminal Division’s Fraud Section.

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