Fast SBA Loan Funds and Fast Cars: 25 Stories of Fraud, Waste, and Abuse
Is our bread-and-butter educating others on how to make sound business decisions? As a B2B content creator, writing for understanding, a shift in perspective, and ideas is what I love to do.
Since April 2020, I have tracked the Paycheck Protection Program (PPP) news for my client’s blog. As you can imagine, I see more and more headlines about lying, cheating, and stealing from the Small Business Administration (SBA) small business coronavirus relief programs.
That surprised me. Here’s why.
I remembered reading the fine print that states the punishment for making false statements or providing untrue or inaccurate information on the PPP application:
I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 U.S.C. 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 U.S.C. 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 U.S.C. 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
Thirty years in jail and a million bucks is a steep price to pay for defrauding the SBA!
So, can you go to jail for SBA loan fraud? Yes. Why some people aren’t afraid of the risks involved in bank fraud and money laundering is harder to answer.
$780 billion in forgivable loans for SMBs created a situation ripe for abuse.
Shortly after the SBA opened the PPP portal, it experienced major issues. The government-guaranteed pandemic loan programs highlighted several weaknesses in our financial system.
We weren’t prepared for the volume of applications.
Bankers have resorted to entering applicant information by hand into E-Tran, the proprietary system used by the SBA to guarantee loans and generate loan numbers.
- Ruhle, Stephanie and Ben Popken. “Thousands of applicants, zero loans: Trump’s small business lending program is a failure to launch” NBCNews.com, 4 April 2020, 2:07 p.m.
Confusing guidance for lenders and borrowers helped big, public companies and hurt small businesses.
Taken together, the new guidance tamps down on bigger businesses' access to the program, but it doesn't specifically bar them from applying.
- Diana Ransom. “Big Companies Landed PPP Loans. And They’ll Be Back for More.” Inc.com.
Inequitable lending practices were a huge hindrance to the aims of the programs and for those small business owners affected.
Wilkinson, Eric. “Women, veteran, and minority restaurant owners lose COVID relief money after a lawsuit.” king5.com, 5 July 2021, 5:11 p.m.
Lauren C. Morel et al. “Rampant racial disparities plagued how billions of dollars in PPP loans were distributed in the U.S.” revealnews.org, 1 May 2021.
The result is that tens of thousands of permanently closed small businesses couldn’t access a PPP or EIDL loan.
If jail time and a $1 million fine aren’t enough to stop fraud, what will?
For bad actors, the PPP was a green light to take first and ask for forgiveness later. Researchers estimate that $70 billion in COVID-19 relief funds landed in the hands of fraudsters.
The following 25 stories about SBA loan fraud feature people who risked significant jail time to take from small businesses during a global health crisis and economic recession.
Will those caught and prosecuted pay a fair price for their crimes? I know it’s not up to us. Sigh. However, as you read this article, you get to be the judge.
First SBA Loan Fraud Story: One man made $17 million
Back in April 2020, finding an SBA-approved lender was tough. Not so for our first opportunist, Dinesh Sah, age 55, of Coppell, Texas.
Sah received a whopping $17 million in PPP money.
How’d one person make so much from cheating?
Sah applied 15 times to eight different SBA lenders for a total of $24.8 million requested. Project on Government Oversight (POGO) reported that 11 of Sah’s 15 applications were funded. Seven of Sah’s PPP loans came from fintech lender Cross River Bank.
Sah’s sentence for SBA loan fraud
The Honorable Karen Gren Scholar of the U.S. District Court for Northern District of Texas sentenced Sah to 135 months on one count and 120 months on a second count. The sentences are concurrent and total 11 years of jail time. The other five counts were thrown out.
Time behind bars is not all that Sah must serve. In addition to jail time, Sah has forfeited eight homes and six luxury vehicles. Also, he will pay $17,284,649.79 in restitution.
Your turn. How do you feel about 11 years in jail and $17 million in restitution for two counts of fraud? Let me know in the comments.
Second SBA Loan Fraud Story: A party of seven charged with fraud netting $16 million in PPP loans
Submitting 15 PPP applications was no small task. Think of the probability of success with seven people submitting applications.
Our second story is about seven men who collectively submitted 80 PPP applications with fake financials for their entities and third-party companies. Owners received kickbacks, and the masterminds purchased luxury vehicles from the ill-gotten $16 million in PPP money.
The conspiring party of seven’s bill
The seven defendants face charges of conspiracy to commit wire fraud, wire fraud, and money laundering.
One count of wire fraud could mean a $250,000 fine and 20 years in prison.
One count of conspiracy to commit wire fraud carries a maximum sentence of 30 years in prison.
One count of money laundering can land you behind bars for up to 20 years with a $500,000 fine.
As of this writing, the investigation by the SBA Office of Inspector General and several other federal agencies is open.
A heads up. These stories are dismaying.
Third SBA Loan Fraud Story: Treat yourself to $17.4 million
For rule followers, it’s hard to figure how schemes like these develop. The following is my version of the story associated with the criminal charges.
On a hot day in July 2020—as COVID-19 cases soared across the country—a Florida man named Andre Clark received a $488,565 PPP loan from Celtic Bank Corporation.
Elated, he calls James Stote to say thanks for the falsified documentation. James says to Andre, why stop now?
Together they attempt to defraud $7 million in PPP money from the SBA. But that was a drop in the bucket.
Last August, the Department of Justice released a statement accusing several co-conspirators, including Clark, in a coordinated effort to defraud the SBA PPP of $24 million.
In all, the pandemic fraud posse received $17.4 million in coronavirus emergency loans.
Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division said:
The defendants allegedly participated in an extensive nationwide scheme to file at least 90 fraudulent applications for millions of dollars in PPP loans in exchange for illegal kickbacks of portions of the loan proceeds.
According to the IRS, Clark conspired with 12 others, including a recording artist from Florida (Diamond Blue Smith) and an NFL player Joshua J. Bellamy. In October, the DOJ filed complaints against Smith and Johnson along with 11 defendants.
It’s hard to count them all.
For his share of the 90 phony applications, Clark was sentenced to 33 months in prison and ordered to pay $2,975,086 in restitution.
The others in the pandemic posse can look forward to their moment before a federal court judge in their area.
Fourth SBA Loan Fraud Story: Apocalypse and an asylum seeker
Maybe it’s the name Apocalypse that encourages reckless acts?
In April, Apocalypse Bella (aka Dias Yumba) and two accomplices from Texas are charged with one count of conspiracy, one count of major fraud, one count of wire fraud, and wire fraud conspiracy. The maximum sentence for all four counts is 55 years in jail for each defendant.
With the help of two men from Texas, Bella, a resident of Oregon, filed falsified applications for two New York-based companies.
The trio collected $4 million in SBA PPP and EIDL loans.
Apocalypse and accomplices await sentencing.
It looks like sentencing could take a while for this case to wrap up.
The District Court of the Southern District of New York summoned one of the Texas-based defendants and his attorney to New York. It doesn’t look good for their defense lawyer.
Another wrinkle in the case is that one defendant is a political asylum immigrant from the Democratic Republic of Congo. Amos Munendi has been living in the U.S. since 2005. His attorney asserts that Munendi’s status protects him from our laws.
Your turn. How does 55 years behind bars for $4 million sound to you?
Fifth SBA Loan Fraud Story: $11.1 million in PPP loans without payroll expenses
One man, Darrell Thomas, age 35, of Duluth, Georgia, received $5.5 million in PPP proceeds from several companies with no apparent business relationship.
How’d he do that? Thomas facilitated fraud.
The charges against Thomas are for helping business owners to apply for $11.1 million in COVID-relief forgivable loans that they didn’t deserve.
Thomas organized 14 PPP loan applications asking for between $700,000 to $850,000 each. A closer look found that these businesses had one crucial thing in common.
Investigators found that fabricated documents—W2s, bank statements, and Form 941—used in all 14 applications were substantially identical. Additionally, PPP disbursements were deposited into non-business accounts and used for personal expenses. Authorities seized $4 million, four luxury vehicles (three from Thomas), and jewelry.
One sentenced and twenty-one more to go.
Fourteen defendants have been charged (First Superseding Indictment). Six of 22 known defendants plead guilty. However, only one of the twenty-two co-conspirators is going to prison for their part in the SBA loan fraud. The rest await sentencing.
In January 2021, Cleveland-based Impact Creations, LLC owner Kahlil Gibran Green, Sr., pleaded guilty to one count of conspiracy to commit bank fraud and wire fraud.
Federal judge J.P. Boulee sentenced Green to serve three years and five months and a five-year supervised release. He will pay $830,000 in restitution, forfeit $157,035.71 in proceeds, and pay a special assessment of $100. According to a report by The Ohio Star, Green had a criminal record.
Fifth SBA Loan Fraud Story: A package delivered a shock to one Georgia woman
A package delivered more than illegal drugs to one Fayetteville, Georgia resident.
On August 11, 2020, the home of Alicia Quarterman, age 38, was searched by the Drug Enforcement Administration in conjunction with the U.S. Postal Inspection Service. The Ledger-Enquirer reported:
A package containing methamphetamine hidden in dog food containers had been mailed to Quarterman’s home,” the U.S. Attorney’s Office for the Northern District of Georgia said this week.
- Kenney, Tanasia, 26 March 2021, 3:38 p.m. Ledger-Enquirer.com.
During the search, authorities found a ledger of personal and bank information as well as texts and photos of false EIDL and PPP loan application documents submitted by Quarterman and her main accomplice, Katrina Lawson, age 41, of Houston, Texas, a former deputy with the Fulton County Sheriff’s office.
Quarterman and Lawson submitted 69 fake COVID-19 SBA loan applications to the EIDL and PPP on behalf of family and friends not connected to any businesses.
According to the prosecution by Assistant U.S. Attorney Miguel R. Acosta, Katrina Lawson paid Alicia Quarterman a finders fee for recruiting others. The two would charge $2,000 to submit a fake application and then take $2,000 after an EIDL $10,000 advance. According to the indictment, Quarterman charged recruits $10,000 for a PPP loan application and forgiveness paperwork.
Ten indicted by the U.S. District Court of the Northern District of Georgia Newnan Division
In March 2021, a grand jury indicted Quarterman, Lawson, and eight co-conspirators for conspiracy to commit wire fraud, wire fraud, bank fraud, mail fraud, and money laundering. All those charges for $700,000.
In hindsight, Quarterman could have avoided money laundering charges if she’d resisted buying a Mercedes Benz. Unfortunately, sentencing this group of ten will take a while. The Newnan Court’s PPP fraud docket is quite full.
Sixth SBA Loan Fraud Story: Four guilty of defrauding $18 million in COVID-19 relief loans meant to help struggling small businesses
Our sixth story of SBA loan fraud was family-operated. Richard Ayvazyan, 42, of Encino, California, and Vahe Dadyan, 41, of Glendale. Ayvazyan and Dadyan teamed up with Ayvazyan’s wife, younger brother, and others. They went on a spree and spent millions of illegally gained coronavirus relief funds on homes, luxury cars, gold bars, jewelry, and a Harley Davidson motorcycle.
Each faces charges of conspiracy to commit bank fraud and wire fraud, 11 counts of wire fraud, eight counts of bank fraud, and one count of conspiracy to commit money laundering. Richard Ayvazyan was charged with two counts of aggravated identity theft.
Family bonds won’t get them out of jail.
In June, the four were found guilty. The maximum sentence for these charges is 20 to 52 years in federal prison. That kind of time behind bars can break the strongest family.
The @FBIlosangeles announced on Twitter that Ayvazyan and his wife, Marietta Terabelian are fugitives on 3 September 2021.
Seventh SBA Loan Fraud Story: A chip off the old block
In July 2021, Harold B. Kaeding, his wife, and their son were named in a civil forfeiture filed in the U.S. District Court of Minnesota. The Eden Prairie family committed wire fraud.
It appears that together, they applied for seven PPP loans and received $504,000 in PPP money from Royal Credit Union, Sunrise Bank, and BlueVine Capital. Authorities seized an SUV and $223,000 from 10 bank accounts.
Harold Kaeding is no stranger to tangling with the Feds. In March 2020, Harold Kaeding sued the IRS for a 2013 tax refund but dismissed the suit in July. He may not have realized there is a three-year statute of limitation on filing for taxes. Kaeding filed his 2013 tax return four years too late in 2017.
So, what tipped off the Feds to the family’s illegal activity?
It appears that Kaeding’s son, Ben Kaeding, and wife, Zoraida Franco, were turned down by the SBA because of suspected fraud.
Eighth SBA Loan Fraud Story: Housewife or accomplice?
Swindling the government to provide (lavishly) for your wife is low. But what happens when your husband gets caught in the cookie jar, and you are a regular on a major reality TV show? That’s some dish.
A Real Housewives of Beverly Hills reality-TV star, Erika Girardi (aka Erika Jayne), is under a microscope. The multimillion-dollar question is, did Erika know that her high-profile attorney and estranged husband, Tom Girardi, was embezzling hundreds of millions to fund her pop star dreams and lavish lifestyle?
Girardi and Keese received a PPP loan for $1.5 million months before filing for Chapter 7 bankruptcy. It would appear that a PPP loan seemed necessary (FAQ #46) to Girardi at the time of their application.
Jail is the least of Girardi’s problems.
Thomas Girardi is best known as Erin Brokovitch’s lawyer. Defrauding the SBA is not the only charge Girardi must refute.
The law firm, Girardi & Keese, was forced into Chapter 7 bankruptcy and his marriage to Erika is in divorce court. He’s the defendant in multiple suits. A class-action lawsuit brought by former clients includes the victims’ families of the 2018 Boeing Max 8 crash in Indonesia. Wells Fargo Financial Services and Girardi’s former partners have also sued Girardi.
Your turn. Is it better or worse to involve your family in defrauding the government?
Ninth SBA Loan Fraud Story: Certify that the PPP funds are for...child support?
Most people spend their ill-gotten PPP funds on flashy cars, homes, and jewelry but not this father.
Our ninth story of SBA loan fraud involves another reality-TV personality, Maurice Fayne, age 38, aka Arkansas Mo.
The story is that Fayne’s SBA lender, United Community Bank, asked for additional financial information on his company Flame Trucking Inc. The query revealed to the lender that the $2 million in PPP disbursement went to a nonexistent trucking company.
Feds searched Fayne’s home in Gwinnett County, Georgia. They seized tens of thousands in cash, jewelry, luxury cars, and equipment, including $9,400 that Fayne had in his pocket at the time, a 5.73-carat diamond ring from the property.
Perhaps the only honorable thing he did with the money he finagled was paying $40,000 in child support.
From Hip Hop to OZ
In May 2021, TMZ reported that the VH-1 reality-TV show Love and Hip Hop: Atlanta personality pleaded guilty to six counts of bank fraud and faced up to 12.5 years in jail. Fayne forfeits the eight 2015 Kenworth T680 trucks and $100,000 from various bank accounts.
Your turn. Do you consider Arkansas Mo’s misrepresentation to the SBA desperate or dumb?
Tenth SBA Loan “Fraud” Story: Influencers get millions
What about the questionable use of PPP funds intended to help small businesses keep their employees on the payroll during the darkest days of the coronavirus pandemic in 2020?
For example, an article on Vice.com about former contestants of two popular multimedia franchises, The Bachelor and The Bachelorette, received SBA loans.
Carter Sherman’s opening line hits the nail on the head:
Dear members of the Bachelor Cinematic Universe: If you make your living posting photos of your “aspirational lifestyle,” maybe don’t apply for government aid.
The following two PPP stories beg the question, who did the PPP help?
Does an influencer’s paycheck need protecting?
In January 2021, Tayshia Adams Media LLC received a $20,833 loan from Itria Ventures LLC. The former star and co-host of The Bachelorette and contestant on The Bachelor received a higher loan with fewer employees (1 not 2) than other recipients in the same industry (independent artists, writers, performers) and in the same geographic area (Orange County).
A representative told reporters Adams’s PPP loan enabled the independent performer to hire a new employee whom another employer laid off due to COVID-19. The loan status is not disclosed.
Husband and provider
ProPublica PPP Tracker listed Instagram Husband LLC, owned by The Bachelorette contestants Lauren Burnham and Arie Luyendyk Jr., received a first-round $20,830 PPP loan from First Financial Bank.
Records show the company's loan was higher than the average ($12,992) in the same industry and area (Scottsdale, Arizona). The Instagram Husband’s loan is forgiven. Coincidentally, in April 2021, the couple moved to their “dream home” in Hawaii.
Your turn. Influencers certified the necessity of their PPP loan. But could they have tapped into their robust fan base for support? Do you think influencers who received PPP or EIDl loans should return their funds as significant corporations like Shake Shack did? Leave a comment below.
Eleventh SBA Loan Fraud Story: Hedging with PPP loan funds
A hedge fund invests borrowed money aggressively to achieve significant capital gains. They were also ineligible to apply for a PPP loan.
The 11th story is about risking PPP money. A hedge fund manager Gregory J. Blotnick, age 34, of New York and West Palm Beach, Florida, was outed after receiving several loans in only a few months.
According to the Manhattan District Attorney, Blotnick applied to five lenders for two companies using falsified documents and certifying necessity. Instead of payroll expenses, Blotnick deposited loan proceeds into his brokerage account.
In April 2020, Blotnick applied for a PPP loan to maintain Brattle Street GP LLC’s 25 employees. Cross River Bank disbursed $491,100 for payroll expenses.
In May 2020, the hedge fund guy applied again for a PPP loan for Brattle Street with TransPecos Bank for $387,100 to keep his headcount at 25. The application was approved, and the funds were disbursed in days. Again in May, Blotnik applied for a $455,800 PPP loan for BSC Management LLC with Northeast Bank. The application was approved for the total amount.
On June 4, 2020, he received $817,487.50 in PPP funds from American Express National bank for Brattle Street’s 45 employees. The loan funds were in the company’s account by June 12, 2020.
Finally, Blotnick applied for a loan to keep Brattle Street’s 16 employees with Ponce Bank. The SBA lender disbursed $338,132 in PPP funds.
According to Dealbreaker, Botnick lost the ill-begotten PPP funds to the market. Easy come, easy go, as they say.
Big jail time for $4 million
In New York, charges against Blotnick include five counts of grand larceny, criminal possession of the stolen property, and fraud. He faces up to 25 years in prison if convicted.
In May 2021, a federal complaint against Botnick was filed in New Jersey, accusing him of eight counts of wire fraud and six counts of money laundering. Those charges carry a maximum of 220 years behind bars. That’s a long time for four million dollars.
Twelfth SBA Loan Fraud Story: Rana away, get jail time
A same-day flight to Pakistan hurried the arrest of Azhar Sarwar Rana of Newton, New Jersey, on December 12, 2020. Rana was charged by complaint and pleaded guilty to one count of bank fraud and money laundering.
In May 2020, Rana received $5,677,473.00 to cover 11 employees of his real estate investment firm. Bank of America disbursed Rana’s PPP loan, and he invested the funds into the stock market, purchased luxury vehicles, and sent money to overseas accounts.
Fake companies like Azhar Sarwar Rana, LLC can afford to offer its lucky staff fat salaries and extravagant benefits!
Rana’s loan request for PPP of $10 million for payroll expenses for 11 employees was way over what is allowed. The PPP caps salaries at $100,000 with healthcare, paid sick leave, retirement, and other benefits.
Fake it, ‘til you make it
Rana is scheduled for sentencing on November 3, 2021. He could receive up to 30 years in prison for bank fraud and 10 years for money laundering. His fines will be substantial as well.
Thirteenth SBA Loan Fraud Story: Caught in Motor City with no getaway
Motorcity Solar Energy Inc owner, Darrell Baker, got a $590,900 PPP loan from Customers Bank to help him keep 68 people employed at his company. On his application, Baker claimed that his payroll was $2.8 million in 2019. Here’s what Baker did with the loan funds.
He used $172,000 to buy four vehicles, including two Cadillac Escalades, a Dodge Charger, and a Hummer. Don’t all those cars run on fossil fuels?
Before Baker could speed out of town, the bank froze the remaining amount of the loan, and federal agents seized Baker’s brand new cars.
No cushy ride to prison
In September 2020, Baker pleaded guilty to bank fraud and money laundering. In July 2021, the District Attorney of the Eastern District of Michigan sentenced Baker to 24-months in prison. The court ordered Baker to pay back the $172,484 he used to buy four gas guzzlers and $89,864 in restitution.
Fourteenth SBA Loan Fraud Story: Refreshing misuse of funds
Our fourteenth story focuses on one man—47-year old Aditya Raj Sharma—founder and CEO of Crosscode Inc. The cloud-based software startup filed for Chapter 11 protection in June 2020. And its board of directors had fired Sharma for mismanagement in the fall of 2019.
According to the U.S. Attorney’s Office of the District of Minnesota, Sharma started three new companies between May and July 2020. He then applied for 16 PPP loans worth $9.6 million from 10 different SBA-approved lenders. Sharma falsified documents for a company he called “Crosscode dba Kloudgaze.”
How successful was Sharma? Blotnick was five for five and had a healthy 53% (8 out of 15 applications) success rate. Not so for Sharma. His scheme was only 18.75% successful. However, it only takes three SBA loan disbursements, totaling $1,773,600, to make someone feel successful.
Instead of luxury cars, jewelry, or securities, Sharma spent his loan funds on legal debts from his lawsuits with the actual Crosscode Inc. He also sent funds to an account in India. And he installed a $64K backyard pool at his home in Maple Grove, Minnesota. That’s refreshing!
Swimming in prison
Sharma was indicted for one count of wire fraud, and he will have to forfeit property bought with this fraud. The maximum prison sentence for wire fraud is 20 years and a fine of up to $250,000. How do you auction off a $64K pool? If you know, please leave a comment below.
Fifteenth SBA Loan Fraud Story: Give credit where credit is due
It does seem like you have to be a gambler to defraud a government lending program during a pandemic recession, doesn’t it?
In July 2020, the Department of Justice released a statement about the arrest and charge of a West L.A. man, Andrew Marnell, for fraudulently obtaining $8.5 million in PPP loans.
Another release, also dated July 16, 2020, said Marnell was held without bail because he’d received closer to $9 million in PPP money.
But those reports gave Marnell too much credit financially and reputationally.
Yet another report said Marnell used fake identities and falsified documents about business activity and expenses to receive $7.3 million in PPP money.
Marnell used his loan to gamble on the stock market and at the Bellagio Hotel and Casino in Las Vegas. #YOLO
A backup Rolex
This high-roller could get 40 years for bank fraud and money laundering. Marnell signed a plea agreement and forfeited $1.5 million, two Oyster Rolex watches, a Range Rover, and a Ducati motorcycle. He will pay restitution in the amount of $7.3 million. Maybe the backup Rolex watch was too much? I’d love your comments.
Sixteenth SBA Loan Fraud Story: 20 years behind bars for a new car
On July 6, 2021, the Delaware U.S. Attorney and the IRS released statements about a 40-year old woman from Newark, Delaware, Ana Soto.
A grand jury indicted Soto for wire fraud, loan fraud, and money laundering. Her modest by comparison scheme procured $246,000.
Soto applied for PPP and EIDL relief for five different companies that were either closed or not yet open at the time. Also, she inflated the revenues and number of employees for her supposed companies on 17 different applications for SBA pandemic business loans.
The new car smell is too good to pass up.
There was nothing reported about Soto’s plea or the date of sentencing. For her crimes, she could receive 20 years in prison. The names of the companies were not released, but the Fed report did say Soto bought a new car. Who can resist the scent of a new car?
Seventeenth SBA Loan Fraud Story: Four times for $2.6 million
In this story, the indicted, 46-year old Anthony C. Boncimino of Sycamore, Georgia, is charged with using shell companies on his PPP loan applications. Unlike independent convenience stores, neighborhood retailers, and local food trucks, shell companies often have access to other sources of capital.
A report released in September 2020 by the watchdog Accountable.us found that the SBA provided $3.4 million in PPP money to shell corporations.
The Middle District of Georgia announced that Boncimino received $2.6 million by submitting “at least four” fake PPP applications.
So, it seems that Boncimino’s scheme was, eh, successful.
Four for forty-five years behind bars
Boncimino was indicted on July 8, 2021, and released on bond. If convicted, he could face up to 45 years in prison, fines of $1.5 million, and have to pay restitution.
His four fake PPP applications got him four counts of bank fraud, four counts of money laundering, and four counts of making false statements.
Eighteenth SBA Loan Fraud Story: Indictment for bribery didn’t keep these two off the road to ruin
In this next story of SBA loan fraud, many of our fraudsters are comfortable with risk, like the former U.S. Bank AVP, a FedEx Groundworker, and a trucking company owner.
This trucking executive wouldn’t let a bribery indictment—innocent until proven guilty—stop him from getting a forgivable PPP loan.
In May, the U.S. Attorney of the District of Utah released a statement that Hubert Ivan Ugarte, age 52, and Lisa Bradshaw Rowberry, age 49, illegally obtained a $210,000 PPP loan for Frisbu Trucking Inc.
A former banker, Rowberry, applied for a PPP with Transportation Alliance Bank, Inc. On the application, she omitted that Ugarte was under Federal indictment for bribing FedEx Ground senior linehaul manager Ryan Lee Mower. According to charges, Ugarte paid Mower for more routes (300% more) than is allowed. Ugarte netted $24 million from that arrangement.
No way to end the summer
This summer, Ugarte was sentenced to 36 months in prison. Rowberry received 12 months and a day for fraudulently obtaining a PPP loan.
Nineteenth SBA Loan Fraud Story: Four loans from one bank
In April and May 2020, Trevor Gene Lanius-McLeod, age 48, applied for three PPP loans from Glacier Bank for T. McLeod Holdings, LLC, Hilltop Estates LLC, and Renovated Montana Properties LLP. In June 2020, Lanius-McLeod and Kasey Jones Wilson, age 29, applied for Step Above Management LLC from—you guessed it—Glacier Bank.
Glacier Bank disbursed $1,043,000 in PPP funds to accounts controlled by Lanius-McLeod.
The two men from Montana certified that the loan proceeds would cover payroll costs. They provided falsified payroll tax information. Instead, they used the coronavirus relief funds to purchase property in East Helena and bought four vehicles and a travel trailer.
The Department of Justice in the District of Montana has charged Lanius-McLeod and Wilson with bank fraud and “engaging in monetary transactions in property derived from specified unlawful activity.”
Joyriding on four vehicles.
Lanius-McLeod and Wilson entered a not guilty plea in July. They were released. If they are found guilty of bank fraud, the maximum sentence is 30 years in prison and a $1 million fine. And they will have to forfeit the property obtained with the PPP money.
Your turn. Would you plead not guilty?
Twentieth SBA Loan Fraud Story: What do sex trafficking of a minor, conspiracy, and wire fraud have in common?
You may recognize the name of Seminole County Tax Collector Joel M. Greenberg. He has been connected to an ongoing sex trafficking investigation of the U.S. Representative from Florida, Matt Gaetz. What does sex trafficking have to do with a coronavirus pandemic emergency small business loan? Our 20th fraudster.
The former Seminole County Tax Collector Joel M. Greenberg, 36, pleaded guilty to sex trafficking of a child, illegally producing a false identification document, aggravated identity theft, wire fraud, stalking, and conspiracy in May 2021. Alone those are serious charges; together, those charges are a lifetime behind bars.
In his plea deal, Greenberg also confessed to moving official Tax Collector money into personal accounts, converting it to cryptocurrencies, and conspiring to defraud the Small Business Administration with fraudulent Paycheck Protection Program loans.
- Scott Powers. 6 July 2021. Floridapolitics.com
How did Greenberg have time to defraud the SBA with all of that going on? He conspired with an SBA employee.
According to reports, Greenberg paid the employee $3,000 to apply for loans without disclosing Greenberg’s criminal charges. In addition, he falsified revenues and payroll expenses. He claimed his businesses had been open before February 2020. The truth was the companies were dissolved years before and suddenly revived.
A 90-Day delay in sentencing
Greenberg’s attorney asked for a delay in sentencing in recognition of his cooperation with law enforcement. In addition, prosecutors will likely recommend leniency from Judge Gregory Presnell in exchange for his help with ongoing investigations into several other criminal matters. The mandatory minimum for Greenberg’s charges is 12 years in prison.
Twenty-first SBA Loan Story: Unchecked boxes
Did you know that the average profit of an ophthalmologist’s office is around $429,000? A modest PPP loan to keep his office and medical staff on the payroll could be a huge relief for someone like Ameet Goyal, MD, ophthalmologist, and owner of Rye Eye Associates.
Dr. Goyal had an office in Rye, New York. He had offices in Mt. Kisco, Wappingers Falls, New York, and Stamford, Connecticut. Dr. Goyal applied for two PPP loans using identical financials for different practices. As we’ve covered in this article, this is a classic move by shysters for cheap (or free) credit.
According to the indictment, last April, Goyal received two PPP loans worth $630,000 within days of each other. The first loan for $278,500 for Rye Eye Associates, a sole proprietorship in Rye, NY, and the second loan for $358,700 to Ameet Goyal, a cooperative, were disbursed by Citibank, N.A.
Here’s where things get shady.
Dr. Goyal failed to check the “yes” box on either PPP loan application to indicate he was under criminal charges and on pretrial release for healthcare fraud.
When Goyal applied for an SBA loan, businesses with owners or shareholders charged with a crime, serving a sentence, on probation, or parole weren’t eligible for SBA loan programs. Biden changed the eligibility rules for small business owners with criminal records to increase access to the PPP. But that change wouldn’t have helped Goyal, who was under pretrial release conditions.
Seeing is believing in this ophthalmologist.
Maybe it will take some time behind bars for this doctor to see the error of his ways. Here are the maximum sentences for all six of his charges.
Healthcare fraud: 10 years
Wire fraud: 20 years
False statements related to healthcare matters: 5 years
Bank fraud: 30 years
Making false statements on a loan application: 30 years
False statements in a matter within the jurisdiction of the executive branch of the Government of the United States: 5 years
A guilty conviction could add ten consecutive years in prison for counts four, five, and six if committed during pretrial release.
Twenty-second SBA Loan Fraud Story: FINRA enforcement
The Financial Industry Regulatory Authority (FINRA) has been busy suspending securities brokers for harming the industry’s reputation. SBA loan fraud committed by brokers is testing the effectiveness of the authority’s enforcement.
In 2020, FINRA:
Brought 808 disciplinary actions against registered brokers and firms for unethical behavior
Levied $57.0 million in fines
Ordered $25.2 million in restitution to harmed investors
More than 970 fraud and insider trading cases were referred to the SEC and other agencies for litigation and/or prosecution.
Here are two SBA loan misconduct stories that came to my attention.
Wells Fargo fired a broker, and FINRA fined.
Kenric L. Sexton got a one-month suspension from associating with any FINRA member in all capacities and a $2,500 fine for engaging in “negligent misrepresentation.”
The former Wells Fargo broker signed the FINRA letter of acceptance, waiver, and consent (AWC) that his business wasn’t in operation when he applied for an EIDL advance. Sexton used the $1,000 to invest under a personal online trading account. His suspension ended on September 1, 2021.
A Merrill Lynch broker applied for an EIDL loan at a party.
Evelyn Batista met someone at a party who helped her to apply for an SBA EIDL loan for a property management real estate company that didn’t exist.
Batista intended to rent out a room from her residence and, based on that, claimed COVID-19 cost her business $15,000 in revenue. Her application was approved for $17,500. However, her employer found out, and Batista lost her job.
Batista paid back the loan with interest. In addition, she signed FINRA’s AWC. Like Sexton, she could not associate with any FINRA member in all capacities for seven months without admitting wrongdoing.
Your turn. Do these offenses feel criminal?
Twenty-third SBA Loan Fraud Story: $11 million surrendered
In the temperate Pacific Northwest, two men plead guilty for attempting to defraud SBA loan programs of $3.4 million.
Russell Anthony Schort, age 39, of Myrtle Creek, Oregon, and Andrew Aaron Lloyd, age 51, of Lebanon, Oregon, submitted multiple loan applications for PPP and EIDL funds for Schort-Lee Construction. The application included a falsified IRS form for 2019 wages of $3 million and a phony list of 56 employee names and salaries.
According to the IRS report, Schort received $601,552 from the U.S. Bank, N.A., and transferred $307,000 to Lloyd, who used his share to purchase securities online.
Awaiting sentencing
Schort pleaded guilty to bank fraud. The maximum sentence is 30 years and a $1 million fine. Also, Schort agreed to pay $294,552 in restitution.
Lloyd pleaded guilty to multiple charges, including bank fraud, money laundering, and aggravated identity theft. Reports say Lloyd agreed to surrender $11 million in securities, cash, and 23 properties purchased with stolen PPP funds.
Twenty Fourth SBA Fraud Story: Synthetic identity scheme
Using a stolen identity to apply for an SBA loan isn’t new. However, a man from New York and his co-conspirator in Oklahoma went further. They created a synthetic identity to apply for their PPP loans.
Amanda J. Gloria, age 44, of Altus, Oklahoma, filed for a PPP loan for the ADA Auto Group LLC in Boca Raton, Florida. According to the criminal complaint, that company had dissolved in September 2018. BankVista disbursed $953,800 to cover the defunct company’s payroll costs, which Gloria claimed to be $4.4 million in 2019.
But that wasn’t all that was fake about Gloria’s loan application. According to the Suffolk County District Attorney, Gloria used a synthetic identity from a man in New York.
Adam D. Arena, age 44, of Buffalo, New York, pleaded guilty to a nationwide synthetic identity heist.
Arena provided companies with the social security numbers of individuals that were unlikely to have a credit history (i.e., minors) or weren’t actively monitoring them (i.e., the elderly). Co-conspirators added the stolen social security numbers as users on their credit cards to build a credit history for these parallel individuals. Once a synthetic identity had a positive credit history, it could max out card cards and apply for PPP loans.
Charges, charges everywhere
Arena and Gloria face charges in New York and federal courts.
In March 2021, Arena pleaded guilty to:
two counts of Grand Larceny in the Second Degree, a class C felony;
Grand Larceny in the Third Degree, a class D felony;
Criminal Possession of Forged Instrument in the Second Degree, a class D felony;
Money Laundering in the Fourth Degree, a class E felony; and
Scheme to Defraud in the First Degree, a class E felony.
Gloria pleaded guilty to money laundering in the fourth degree, a class E felony in New York.
The DOJ charged Arena with the following:
one count of conspiracy to commit bank fraud,
one count of conspiracy to engage in monetary transactions with criminally derived proceeds,
one substantive count of bank fraud, and
three substantive counts of engaging in monetary transactions with criminally derived proceeds.
Gloria is similarly accused. However, she also got one count of engaging in monetary transactions with criminally derived proceeds.
Twenty-Fifth SBA Fraud Story: Tech + Finance = 1.8 million loans to fraudsters
The final story is how bad SBA loan fraud was between March 2020 and August 2021.
Analysis of the lending data indicates that lenders made 1.8 million PPP loans worth $79 billion to fraudsters, shysters, and numbskulls. The study zeroed in on FinTech lenders who may have loaned out $21 billion to fraudsters.
For example, the largest three FinTech lenders, Cross River, Capital Plus, and Harvest, exhibited high and increasing rates of both misreporting and lending volume while receiving over $900 million in processing fees each.
- John M. Griffin et al. “Did FinTech Lenders Facilitate PPP Fraud?”.
Why weren’t shady applicants discovered during the application process? That’s a topic for a future post.
A review of the SBA’s response to the pandemic and its two signature programs—PPP and EIDL—are ongoing. Fixing our emergency credit issues will take time and the expertise of banking, tech, and regulatory bodies.
The moral of these 25 stories about SBA loan fraud
Sadly, it was all too easy for some to abuse and misuse emergency loans during the pandemic.
So, what can individuals, entrepreneurs and owners, and lenders learn from these tales of SBA loan fraud?
These stories offer lessons for everyone involved. They warn about the dangers of nonchalant cybersecurity, inequitable lending, and more.
Please share this post with your clients and start a dialogue.