A Portland man pleaded guilty after fraudulently obtaining nearly $900,000 in loan money from the federal Paycheck Protection Program and spending it on vacations, gambling and other personal expenses.
And a West Linn man is accused of obtaining nearly $8 million after submitting dozens of fraudulent applications for Economic Injury Disaster Loans.
The cases represent just a small fraction of the suspected criminal activity that law enforcement believes took place in Oregon as the federal government raced to get money into the hands of businesses trying to weather the pandemic.
The U.S. Attorney’s Office in Oregon has brought charges against 14 people accused of submitting fraudulent applications for coronavirus relief funds totaling more than $183 million, leading to the federal government erroneously handing out nearly $19 million.
Another two dozen cases have been resolved after suspects returned the money or reached settlements, and dozens more investigations remain open, said Ryan Bounds, the lead COVID fraud prosecutor for the U.S. Attorney’s Office in Oregon. And it’s likely that many more have yet to be detected.
“We’re very focused on this, and we’re intent on vindicating the taxpayers’ interest in ensuring that relief went to people who needed it and that people who abused the program will face consequences for doing so,” Bounds said. “This is still very much an ongoing and active effort.”
In a race to rescue businesses and individuals from the pandemic’s economic fallout, the federal government prioritized speed over stringent safeguards in its coronavirus relief programs. That enabled hundreds of billions of dollars to reach businesses quickly, but also created an opportunity for rampant fraud, especially through the Small Business Administration’s Paycheck Protection Program and the Economic Injury Disaster Loans, which provided billions in potentially forgivable assistance.
The Justice Department reported in early March that its civil and criminal investigations had uncovered $8 billion in attempted fraud through coronavirus relief programs. That may represent only a fraction of the fraud that occurred. Last year, Hannibal Ware, the inspector general for the U.S. Small Business Administration, said the agency had uncovered nearly $80 billion in potential fraud through its Economic Injury Disaster Loan program alone.
The federal government has taken an aggressive stance in its attempts to claw back pandemic aid obtained fraudulently. President Joe Biden dedicated part of his State of the Union address to the issue this month, saying he would appoint a chief prosecutor to pursue the most egregious cases and asking Congress to allocate more money for prosecutions.
To date, the Justice Department has brought criminal charges against more than 1,000 defendants nationwide with alleged losses exceeding $1.1 billion, seized over $1 billion in Economic Injury Disaster Loan proceeds and initiated civil investigations into more than 1,800 individuals and entities connected to pandemic relief loans totaling more than $6 billion.
Representatives from roughly a dozen federal law enforcement agencies have been meeting biweekly in Oregon since September 2020 to review leads and coordinate investigations into potential coronavirus fraud. Among the agencies involved in the task force are the U.S. Attorney’s Office in Oregon, the Small Business Administration’s Office of Inspector General and the FBI.
Officials say they expect the work to continue for several years.
“I do think we’ve already had a pretty good impact, but I think we still have work to do,” said Kieran Ramsey, the special agent in charge of the Portland FBI Field Office. “Unfortunately, there was no shortage of criminal opportunists out there that took advantage of what they saw as easy money through these programs.”
Shafee Carnegie, the assistant inspector general for investigations at the Small Business Administration’s Office of Inspector General, said the agency has relied on tips it receives through its hotlines and its own internal data analytics team to flag potentially fraudulent applications for the Paycheck Protection Program and Economic Injury Disaster Loans.
Investigations can be slow and arduous. Carnegie said the agency is used to receiving less than 1,000 complaints per year through its hotline, but is now receiving closer to 100,000.
At the same time that it’s chasing those tips, the agency is using data-mining software to identify suspicious applications and run background checks on individuals it flags.
While the agency only has about 100 investigators on its own, it’s also handing off leads to other agencies, including through task forces like the one in Oregon.
“It’s a whole government approach,” Carnegie said. “It’s not just the SBA, as we did in the past, going out and tackling these fraud investigations ourselves. It’s multiple agencies coming together to track down bad actors to bring folks to justice.”
The fraud has come in many forms. Bounds said he has come across cases where unsuspecting intermediaries have been duped by criminal syndicates outside the country into accepting money on their behalf and wiring it to foreign bank accounts, leaving prosecutors with limited options to bring criminal charges or recover the money.
Other cases are more straightforward. In some cases, suspects received loans by exaggerating payroll and employment at their companies or applying on behalf of companies that didn’t exist. In others, they have used stolen identities to obtain business loans or unemployment insurance.
In January, Andrew Aaron Lloyd, 51, of Lebanon was sentenced to 48 months in federal prison for using the business names and personal identification information of relatives and business associates to apply for numerous loans through the Small Business Administration, ultimately receiving more than $4 million through the Paycheck Protection Program and the Economic Injury Disaster Loans. An accomplice, Russell Anthony Schort, 39, of Myrtle Creek, pleaded guilty to bank fraud last year.
Lloyd used the money to buy 15,740 shares in Tesla Inc. and more than 25 properties in Oregon and California.
In that case — one of the first charged in Oregon — the government made a bundle. By the time Lloyd was sentenced in January, the seized securities and properties were valued at more than $18 million.
“He ended up making more with his stolen money than he got from the government,” Bounds said, “so it worked out well for the Treasury in the end.”
Sheldon Shoemaker, an assistant inspector general at the Small Business Administration’s Office of Inspector General, said more fraudulent loans are likely to be identified as deferred payments come due and more loans go into default.
However, Shoemaker said there is no quick way for the federal government to identify and prosecute the amount of fraud suspected.
He said it’s clear that not enough safeguards were in place to prevent rampant fraud, and that’s something the federal government must sort out for future relief efforts.
“The real fact of the matter here is you can’t chase fraud after the fact like this,” Shoemaker said. “At a scale and scope of this level, the internal control environment was clearly not calibrated in the interest of ensuring eligibility. You can’t unwind that clock.”
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