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By Marissa Koblitz Kingman and Matthew D. Lee

With the arrest of the CEO of a New Jersey non-bank lender, the U.S. Department of Justice appears to have entered a new, more aggressive phase of its scrutiny of COVID-19 related aid and alleged fraud in the administration of the Paycheck Protection Program (PPP) .
Rafael Martinez is accused of using falsified documents to obtain approval from the U.S. Small Business Administration (SBA) for his company, MBE Capital Partners LLC, to issue PPP Loans as a non-bank lender. The government asserts that MBE earned more than $70 million in lender fees.The charges against Martinez – the first against a lender – come on the heels of President Biden’s announcement in his State of the Union address that the prosecution of PPP-related fraud is a priority of his administration.The DOJ’s expansion of prosecutions to lenders should serve as a warning to business and individuals that the government is laser-focused on investigating and prosecuting any fraud related to COVID-19 aid.

The CARES Act

The CARES Act (Coronavirus Aid, Relief and Economic Security Act) was designed to provide emergency financial assistance to those suffering economic losses and uncertainty as a consequence of the COVID-19 pandemic.

Enacted in March 2020 and later reauthorized to create a second draw lending program, the CARES Act included $2.8 trillion in economic aid for individuals and businesses and provided access through the SBA to forgivable loans to cover payroll and other specified expenses through the PPP.

Biden Warns of ‘Watchdogs’

As the government continues to widen the scope of its PPP investigations, all signs point to one of the most expansive white-collar criminal investigations in U.S. history.

In his State of the Union address, President Biden vowed to appoint a chief prosecutor to fight CARES Act related financial crimes. The move comes as the U.S. Justice Department prosecutes cases around the country alleging that borrowers falsified paperwork to obtain forgivable loans meant for small businesses. President Biden warned that “watchdogs” will be going after alleged criminals that wrongfully took advantage of the CARES Act.

First Lender Prosecution

According to a DOJ press release, Martinez was arrested on multiple fraud charges and aggravated identity theft in connection with loan and lender applications submitted through the PPP administered by the SBA. Martinez allegedly used false representations and documents to fraudulently obtain the approval of the SBA for his company to be a non-bank lender and then used that approval to obtain approximately $932 million in capital to issue PPP loans and earn over approximately $71 million in lender fees.

Prosecutors also alleged that Martinez engaged in a scheme to obtain a PPP loan for MBE in the amount of approximately $283,764 through false statements regarding the number of employees of MBE and the wages paid to MBE employees and using the forged signature of MBE’s tax preparer. Martinez allegedly spent the proceeds from his scheme on the purchase of a villa in the Dominican Republic for more than $10 million, a $3.5 mansion in Franklin Lakes, NJ, a chartered jet service, and several luxury vehicles.

Potential Consequences

Martinez was charged with one count of bank fraud, two counts of wire fraud, and one count of making false statements to a bank, each of which carries a maximum sentence of 30 years in prison; one count of making false statements, which carries a maximum sentence of two years in prison; one count of making false statements to the SBA, which carries a maximum sentence of two years in prison; and one count of aggravated identity theft, which carries a mandatory minimum sentence of two years in prison, which must be served consecutively to any other sentence imposed.

Any individual or business owner 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 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 mlee@foxrothschild.com or Marissa Koblitz Kingman at mkingman@foxrothschild.com.

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