When a name such as disgraced football coach Joe Paterno, dead nearly a decade, shows up on documents applying for a pandemic loan, it’s a pretty good red flag there’s something fishy going on.
But authorities say that’s exactly what one scammer tried to do.
Another stands accused of applying for dozens of unemployment benefits under other people’s identities — a fairly common scam right now, with hundreds of billions of dollars in government assistance available. What made rapper Nuke Bizzle’s attempt stand out is that he posted to YouTube a music video showing himself applying for benefits.
It didn’t help the case of the rapper, whose real name is Fontrell Antonio Baines, that the names on the envelopes he flashed in the video were real victims of his identity theft, according to court documents.
There’s also David Adler Staveley, one of the first people to be charged last year with pandemic fraud. After he was arrested and released on home detention, he faked a suicide, leaving his car near the ocean and a suicide note inside. He pleaded guilty last week to charges of conspiracy stemming from the loan scam and failure to appear, stemming from his fake suicide.
As America begins to emerge from the grip of the COVID-19 pandemic, a reckoning awaits.
Over the past 14 months, the country saw the best of itself, with countless business owners, doctors, nurses and others stepping up to help their neighbors. But it also saw the worst of itself, as cheats, scoundrels and scammers looked at the trillions of dollars being pumped into the economy by the government as a chance to make off with more than their share of the pie.
And while many Americans were struggling with monthly payments, fraudsters were using taxpayer money to buy Maseratis and Teslas, install home swimming pools, or pay for plastic surgery.
The breadth of criminality is startling.
Justice Department prosecutors this week said it had rolled up a network of scammers who bilked the government out of $143 million in bogus COVID-19 medical bills.
In Miami, two men have been charged with stealing ventilators the U.S. was shipping to El Salvador.
Santwon Davis of Atlanta lied about having contracted COVID-19, forcing the company where he worked to shell out $100,000 for a deep cleaning that wasn’t needed.
Two Texas men have been charged with trying to swindle a foreign government desperate to buy N95 masks in the early days of the pandemic. Though they never had the masks, prosecutors say, they were working on a $317 million deal and stood to make a staggering $275 million profit between them.
At least two women who had worked for California’s unemployment system have been accused of scamming their colleagues in separate frauds, submitting slates of bogus applications for benefits. One submitted an application under the name of a U.S. senator, while the other has been charged with submitting names of prison inmates.
In Massachusetts, a woman was hired as a temporary worker at the state’s jobs agency and given system access to alter information on claims. Prosecutors say she used the power to approve bogus updates to data on her and her husband, who was in prison at the time, increasing their income from zero to $240,000 and the number of children from zero to seven.
Authorities appear to have tipped to that scam after searching the couple’s home as part of the conditions of her husband’s probation.
Trillions of dollars have been approved, and hundreds of billions of dollars have flowed to the programs most at risk of fraud. Built in to each program, though, is tension between getting cash out the door quickly to those who need it and trying to block those who don’t deserve it.
Pete Sepp at the National Taxpayers Union said the government bet heavily on speed, and “we paid a terrible price in wasted money.”
“Haste made waste,” he said. “Taxpayers will look back on 2020 as the year that money flew out the door and disappeared.”
Three major pots of federal money have been targeted for fraud.
One is the Paycheck Protection Program, or PPP, a federally backed loan system that pays businesses to keep employees on their payrolls. Another, run directly by the Small Business Administration, is the Economic Injury Disaster Loan, or EIDL, which included an option for a cash grant, completely forgivable.
The SBA’s inspector general says that as of Feb. 28 it had identified $79.1 billion in potentially fraudulent EIDL loans and grants. That figure is based on red flags such as applications that shared the same IP address or email address, or overlapping or shifting bank accounts.
The final major federal program is enhanced unemployment benefits.
The Labor Department has not estimated an improper payment rate yet, but the department’s inspector general says its initial work signals the rate of improper payments is above 10%. Given that $896 billion has been allocated for the boosted pandemic benefits, that would mean at least $90 billion in bad payments.
More than 15,000 investigations have been opened, the inspector general said.
Brian M. Feldman, a partner at Harter Secrest & Emery LLP in Rochester, New York, has been tracking court cases and said the vast majority he’s seen have been criminal charges of PPP fraud.
He said there have been a few False Claims Act cases, but said more of those could come in the future, thanks to the way the law is written, with time for whistle-blowers to make their claims and the government to investigate.
On the criminal side, he said, what’s churned up so far is low-hanging fruit.
“There are a lot of cases, but I’m confident it’s the tip of the iceberg. Whether the rest of the iceberg looks like the tip or not will be interesting to see,” he said.
The Washington Times has tracked cases involving hundreds of defendants, and some trends have emerged.
One favorite scam is for prisoners to collect identities of fellow inmates and then turn them over to someone on the outside, who applies for benefits in their name. In one case typical of the bunch, prosecutors in California charged Sheila Denise Dunlap with submitting 121 bogus stimulus check requests — $145,200 worth — using identities that her son, imprisoned at San Quentin State Prison, scoured from fellow inmates and others.
Inventing employees for company rosters is also common for PPP fraud.
That was the case for Sheng-Wen Cheng, who authorities say populated his application with names taken from television anchors, a former pro football player and what an FBI agent described as “a prominent Penn State football coach who is now deceased” — presumably Paterno. Cheng, who came to the U.S. on a student visa and attended Penn State, pleaded guilty in April to multiple counts of fraud.
Social media played a role in helping spread scams, with some fraudsters saying they watched YouTube videos to learn how to game the system.
Paul Kwak was charged in May after authorities say he posted a video to YouTube, in Korean, inviting applications for “disaster assistance you don’t have to pay back.” Prosecutors linked him to more than 70 bogus loans, totaling more than $4 million.
There are also examples of people posting pandemic cash spending sprees online, giving investigators evidence to use in proving they misdirected government cash for personal aims.
Investigators have been relatively tight-lipped about how they’ve come across most of the cases, though reading between the lines of complaints, it seems clear that financial institutions must be flagging suspicious activity.
Analysts also are scouring for electronic tell-tale signs, such as a spate of applications filed from the same Internet Protocol address or using the same email account.
In Texas, one alleged fraudster claimed to have 400 employees working for him. Investigators pointed out there’s no business of that size — nor even a building big enough to house it — anywhere in the community, which has about 1,100 residents.
There are a slew of cases where it’s clear investigators were already honing in on fraudsters who had been scamming well before the pandemic, but who saw unparalleled opportunities for new mischief with COVID-19.
Nicholas White, for example, had gleaned identities from stolen mail, was nabbed for fraud and was released on bond. But when COVID-19 hit, he began to use his pool of identities to apply for unemployment and stimulus checks in their names, too.
He was sentenced to eight years in prison for the totality of his scams.
Then there’s Jeremy Trapp, who cut the brakes on a New York Police Department vehicle during last summer’s racial justice demonstrations. In searching his cellphone as part of that case, agents found he had applied for an Economic Injury Disaster Loan for a car wash business that never existed. He collected $42,500.
Overall, the government has had a mixed record in recovering the money.
In Florida, prosecutors won a judgment in April forfeiting $8.4 million they say a family stole in bogus PPP loans.
But they squeezed just $519,000 out of a Nevada man who pleaded guilty to PPP fraud. He gave them an IOU for the rest of the money — $862,000 — he admitted he stole.
“My pessimistic suspicion is that a lot of the money will be consumed, will not be recoverable, and the government may get judgments that on paper are worth a lot in terms of restitution,” Mr. Feldman said. “But actually collecting from these defendants will not be half as good as the judgments themselves.”
Mr. Sepp said that’s particularly true given the international origins of some scammers.
“Recovery’s going to be very difficult because a lot of the money went out of the country. Where are they going to find it?” he said.
He said the PPP loans stand the best chance for clawbacks because of the records financial institutions keep. Unemployment scammers, though, have likely already blown the cash.
Overall, banks seem to be doing a decent job of denying bogus applications. In case after case, fraudsters are getting just a small fraction of the total loans they applied for.
Tarik Jaafar, for example, applied for 18 loans totaling $6.6 million, but banks approved only $1.4 million. Jaafar was arrested last year just before boarding a flight to Poland to avoid capture and was sentenced in November to 12 months in prison.
But a congressional subcommittee overseeing pandemic spending raised concerns late last week about the financial tech industry’s involvement in shepherding PPP loans. Chairman James E. Clyburn said four companies seemed to be linked to an exceptional amount of fraud.
He fired off letters to the firms demanding documents and saying that they may have been too speedy in getting money out the door, and “appeared to include very little scrutiny” of applicants.
“The indifference to the proper disbursement of public funds is unacceptable,” the South Carolina Democrat wrote.
Relatively few cases have gone to sentencing, but of those that have, punishments range from probation for selling a pesticide billed as a coronavirus cure to more than six years for David T. Hines, who filed for $13.5 million in pandemic loans, collected nearly $4 million, and spent it on dating websites, beach resorts and a $318,497.53 Lamborghini.
He’s far from the only fraudster to go big with ill-gotten cash.
The criminal case files are peppered with purchases of Maseratis, Mercedes and Bentleys, swimming pools and vacations.
Federal prosecutors in New York accused one woman, Shaneesha White, of grabbing nearly $50,000 in bogus unemployment claims, filed with the same IP address, then taking a trip to Florida where she spent $5,500 for plastic surgery.
In Ohio, prosecutors say Toni Wright kept applying for companies, getting denied and reapplying — eventually collecting about $350,000 in PPP loans. Court documents say she blew tens of thousands of dollars on a gambling spree, bought a $52,000 Tesla, and paid $10,500 at a liposuction specialist.
“None of these expenses appear consistent with payroll, rent or other permitted expenses,” the FBI agent dryly noted in a court affidavit.
Even as she claimed to be running multiple businesses with a million-dollar income, Ms. Wright also applied for — and received — pandemic unemployment benefits.
Mr. Feldman figured some of the big-item spending might be linked to the pandemic itself.
“Part of me has to wonder whether some of these defendants took it harder than the rest of us and took it as the end of days, and thought they’d ride out the end of days in a Maserati,” he said.
Prosecutors said Andrew Aaron Lloyd took it one step further.
He and another man stand accused of collecting $2.2 million in bogus loans from the Small Business Administration and SBA-backed banks. Investigators said Mr. Lloyd pumped most of the money into his ETrade account and bought shares of Tesla Inc. When they moved on him in early January, the portfolio was worth $11.5 million.
But there’s also Gregory Blotnick, whom prosecutors charged with obtaining $3.8 million in PPP loans. An inspector general special agent said Mr. Blotnick pumped about $3 million of that cash into stocks — and “lost approximately all $3 million.”