By Matthew D. Lee and Marissa Koblitz Kingman
The U.S. Department of Justice continues to seek long prison sentences for those convicted of COVID-19 related fraud. Recently, courts have agreed with prosecutors, and have issued increasingly lengthy prison terms to those convicted of Paycheck Protection Program fraud. These prison terms send a clear message to any individual or business that benefited from government aid that they should not only expect enhanced scrutiny, but if the government is able to prove that fraud occurred, individuals face the prospect of serious time behind bars.
The CARES Act
The CARES Act (Coronavirus Aid, Relief and Economic Security Act), enacted in March 2020 and later reauthorized to create a second draw lending program, was designed to provide emergency financial assistance to those suffering economic losses and uncertainty as a consequence of the COVID-19 pandemic. It included $2.8 trillion in economic aid for individuals and businesses and provided access through the Small Business Administration (SBA) to forgivable loans to cover payroll and other specified expenses through the Paycheck Protection Program (PPP). It also provided government assistance through the Economic Injury Disaster Loan (EIDL) program and Unemployment Insurance (UI) program. However, the CARES Act also provided an opportunity for people to take advantage of the government assistance, and all signs point to one of the most expansive white-collar criminal investigations in U.S. history as the government’s vast investigative resources continue to aggressively prosecute fraud and abuse in these programs.
COVID-19 Related Prosecutions and Sentences
As discussed in our prior alert, “Paycheck Protection Program-Related Convictions Result in Harsh Federal Prison Sentences,” the Justice Department began, immediately after the CARES Act’s passage, to investigate and prosecute pandemic-related fraud at lightning speed. Many cases have now been fully litigated and the defendants have been sentenced. Recently, the sentences have appeared to become harsher. Two examples of the recent lengthy federal sentences include:
A Texas man was sentenced to over nine years in prison for his scheme to fraudulently obtain and launder proceeds from more than $1.6 million in Paycheck Protection Program loans. He was convicted of wire fraud and money laundering. He pled guilty to submitting fraudulent PPP loan applications to two different lenders on behalf of three entities. The defendant falsely represented the number of employees and payroll expenses in each of the PPP loan applications and submitted fraudulent tax records for the entities.
Three members of a San Fernando Valley family were sentenced to up to seventeen (17) years in federal prison for scheming to fraudulently obtain more than $20 million in Paycheck Protection Program and Economic Injury Disaster Loan COVID-19 relief funds. All three were found guilty of one count of conspiracy to commit bank fraud and wire fraud, eleven counts of wire fraud, eight counts of bank fraud and one count of conspiracy to commit money laundering. Two family members were also convicted of aggravated identity theft.
These sentences handed down by federal judges demonstrate that individuals and businesses must proceed with caution when navigating potential fraud issues related to COVID-19 crimes. Any attempt to correct prior potential mistakes in seeking and receiving government aid should be conducted with counsel. Minor actions could mean the difference between having to simply pay funds back and spending years behind bars.
Any individual or business owner who is concerned about compliance with the CARES Act or about potential exposure to COVID-19 related fraud allegations should immediately consult counsel and not wait to be contacted by law enforcement. Those who have already received a subpoena or inquiry from any law enforcement agency should immediately consult with counsel to assess the full potential for civil and criminal exposure before responding.
For up-to-date information on prosecutors’ efforts in combating COVID-19 related fraud, consult Fox Rothschild’s proprietary COVID-19 Fraud Prosecutions Tracker, an interactive tool that monitors new case filings and the disposition of cases involving alleged fraud and abuse in connection with PPP and other COVID-19 related aid programs nationwide. For access, contact Matthew D. Lee at firstname.lastname@example.org or Marissa Koblitz Kingman at email@example.com.