As my colleague Bernie Rafferty predicted in April, people attempt to take advantage of situations arising from natural disasters or man-made crises and commit fraud.
While the Paycheck Protection Program (PPP) was not yet established when he wrote his article, Bernie’s prediction still proved to be true. With more than $525 billion in PPP loans approved through program close as of August 8, 2020, fraudsters were keen to get their hands on these funds.
The FBI has opened hundreds of PPP-related investigations, involving hundreds of millions of dollars, while the Justice Department has already charged 73 defendants in PPP fraud cases. Two of the more notable cases involve David T. Hines, a Florida businessman, and Martin Kao, a prominent Hawaii defense contractor and political activist.
According to federal prosecutors, Mr. Hines sought more than $13.5 million in PPP loans for seven companies, and received $3.9 million in loans for three of the companies. Federal prosecutors allege that Mr. Hines inflated payroll costs and employment figures on his applications. As a result, Mr. Hines received far more in loans than he should have, based on his monthly payroll. Upon receiving these funds, Mr. Hines did not waste any time in exploiting them for his own gain. Mr. Hines allegedly paid $320,000 for a Lamborghini, which he was spotted driving around Miami less than a week after receiving funding.
Mr. Kao was arrested in Hawaii in September with charges of bank fraud and money laundering for falsifying PPP loan applications. According to prosecutors, Mr. Kao falsified the number of employees who were under his employment in order to receive more money than he was eligible for. Additionally, Mr. Kao allegedly used his subsidiary companies to apply for loans in order to “double-dip” into the program.
In response, the Small Business Administration has recently circulated for comment two new forms (Form 3509 and Form 3510) in order to evaluate the good-faith certification made by borrowers upon application. However, as more and more businesses begin to apply for forgiveness, there will still undoubtedly be an increase in fraud investigations and cases.
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