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Starting in March 2020, the COVID-19 pandemic forced many businesses to close their doors. This threatened the financial stability of both businesses and employees. In response, Congress passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act), an economic stimulus bill aimed at providing aid for individuals and businesses. Some of the key components of the CARES Act were the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program. While many legitimate businesses took advantage of the programs, some of the loan recipients were untruthful on their loan applications — using funds for extravagant homes, Lamborghinis, designer watches and other unapproved items.

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Within months of the CARES Act’s implementation, the Department of Justice (DOJ) set up a team focused on combatting COVID-19 fraud. That prosecutorial focus continues today. On March 10, 2022, Associate Deputy Attorney General Kevin Chambers was appointed as director for COVID-19 Fraud Enforcement and has been tasked with leading the DOJ’s criminal and civil enforcement efforts. As of that date, the DOJ announced that it had charged over 1,000 criminal defendants, conducted 240 civil investigations and seized over $1 billion in Economic Injury Disaster Loan (EIDL) proceeds.

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Criminal cases involving COVID-19 fraud have been filed in multiple districts and have involved everything from multidefendant, multimillion-dollar schemes to single defendants charged with wrongfully obtaining less than $10,000. Some recent examples include:

Twenty two defendants were indicted in the Northern District of Georgia for wire fraud, conspiracy and other charges. The defendants allegedly fabricated tax returns and other documents to wrongfully obtain $3.9 million in PPP loans.

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In the Eastern District of Texas, 19 individuals, including a former actor in the Power Rangers series, were indicted for conspiracy to commit wire fraud after the group submitted false paperwork misrepresenting the number of employees, payroll and other details to wrongfully obtain roughly $3.5 million in loans.

Four defendants have been indicted in the U.S. District Court for the Eastern District of Michigan for allegedly obtaining over $2.6 million in PPP loans after misrepresenting their payroll costs and number of employees.

An individual defendant was indicted in the Northern District of Georgia after the government claimed that the defendant wrongfully obtained over $9 million in PPP loan proceeds for a company he organized over a year after the pandemic began and that has never conducted any legitimate business.

A federal jury in the Eastern District of Michigan convicted a defendant of wire fraud and money laundering after he fraudulently obtained over $4 million in PPP and EIDL loan proceeds.

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In the U.S. District Court for the Western District of Michigan, a grand jury indicted five men for wire fraud, money laundering and conspiracy charges. The government alleges that the men obtained $1.4 million in PPP loans after misrepresenting their businesses and related expenses on the loan applications. In March 2022, two of the five men pleaded guilty to conspiracy to commit wire fraud and conspiracy to commit concealment money laundering. Both men were sentenced to prison time — one will serve 33 months and the other 36 months in prison. The remaining three defendants are proceeding to trial where the statutory maximum penalties, if they are found guilty, range between 10 and 20 years in prison.

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While the matters involving large criminal enterprises and foreign actors remain the focus of the DOJ’s efforts, smaller scale frauds are not escaping scrutiny. For example, two women have been indicted in the U.S. District Court for the District of Massachusetts after wrongfully receiving $5,066.67 and $4,746 in PPP loans, respectively.

It is safe to assume that the DOJ will continue its focus on both criminal and civil enforcement of COVID-19 fraud in the months and years to come. For more information about PPP loan fraud enforcement actions, please contact Madelaine Lane or a member of the White Collar Criminal Defense Practice Group.

<em>Brandon Hayes contributed to this eAlert. He is a law student at Detroit Mercy Law School and a 2022 Warner Norcross + Judd summer associate.</em>

White Collar Criminal Defense

COVID-19 Fraud: The Next DOJ Focus

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