Tens of thousands of companies 'wrongly received COVID relief loans' (2024)

Tens of thousands of companies may have wrongly received hundreds of millions in COVID-19 relief loans meant for small businesses, data shows.

The Small Business Administration's inspector general has identified organizations which should not have been given the money, warning of'widespread potential abuse and fraud'.

Around $525 billion in loans were given to 5.2 million businesses between April 3 and August 8 under thePaycheck Protection Program (PPP) scheme.The taxpayer-funded program was aimed at helping small businesses survive the pandemic.

Now The Wall Street Journal reports how the federal government is dealing with increasing reports of potential fraud over the scheme. There was little vetting of companies that said they needed the cash by either banks or the government.

That meant that companies created after the pandemic began, businesses with too many employees to qualify and those already owing money to taxpayers may have wrongly been handed the loans.

There were nearly 2,500 reports ofsuspicious-activity in September aloneTreasury Department data shows. That ismore than the total for any year since 2014.

Kenneth Blanco, director of the Treasury Department’s Financial Crimes Enforcement Network, said there was evidence ofmultiple payments to one account.

The FBI has opened up several hundred investigations into the potential fraud;73 defendants have been charged by the Justice Department.

One of those charged is former New York Jets wide receiver Joshua Bellamy.

He is facing federal fraud and conspiracy charges for his alleged involvement in a scheme to obtain $1.2 million in coronavirus relief loans.

According to federal prosecutors in the Southern District of Florida, Bellamy obtained the loan through the Paycheck Protection Program for his company, Drip Entertainment LLC, by falsifying bank and employment records. Bellamy then allegedly used $104,000 of that to buy luxury goods, while encouraging his girlfriend and brother to take similar advantage of the loans.

Acting Assistant Attorney General Brian Rabbitt said in September that coordinated criminal rings have worked to defraud the program.

In one case in Miami, a man was accused of using PPP funds to buy a Lamborghini sports car and other luxury items.

David T. Hines, 29, from Miami, allegedly obtained $4 million in Covid-19 relief funds after applying for a PPP loan.

He claimed that he had hundreds of employees across four companies - Unified Relocation Solutions, Promaster Movers, Cash-in Holdings LLC and We pack Moving LLC - and that he needed $13 million to keep paying them.

In reality, prosecutors say he had 12 employees and that his business 'inflows and outflows' were around $200,000 a month.

In another case, Lee Price III, 29, from Houston, is believed to have spent PPP money on luxury items including a Lamborghini, real estate and splashed some of the cash for his own amusem*nt at area strip clubs.

Price is charged with making false statements to a financial institution, wire fraud, bank fraud and engaging in unlawful monetary transactions.

Last month aNorth Texas businessman was accused of stealing more than $17 million in coronavirus relief funds and spending the money on houses and luxury cars, including a Bentley and a Corvette.

Dinesh Sah, 55, of Coppell, allegedly sought around $24.8 million in forgivable Payment Protection Program loans but ultimately received $17.7 million.

In his application, Sah filed for PPP loans for 15 businesses that claimed to have more than 500 employees and hundreds of thousands of dollars in payroll expenses, a federal indictment unveiled Saturday claims.

However, investigators say that the majority of the businesses were registered in June, three months after the CARES Act was passed, and also had no registered employees.

And in August, Jean Fleuridor, 41, and Hasan Brown, 44, were charged in South Florida with using fake identities and a network of shell companies to fraudulently obtain more than $3 million in PPP funds.

Tarek Helou, a former Justice Department prosecutor, said: 'They don’t charge mistakes. They charge intentional lies.The scandal is what’s legal, not what’s illegal.'

In September JPMorgan Chase said that a number of its employees and customers may have abused the Paycheck Protection Program and other coronavirus stimulus programs.

JPMorgan, the nation's largest bank by assets, was also the nation's largest participant in the PPP.

The JPMorgan memo only said that the bank discovered 'instances of customers misusing the Paycheck Protection Program loans, unemployment benefits and other government programs' and that 'some employees have fallen short, too.'

That same month it emerged that more than$1 billion from PPP went to companies that received multiple loans, in violation of the program's rules, the House of Representatives Select Subcommittee on the Coronavirus Crisis said.

Then in OctoberWells Fargo & Co fired about 100 to 125 employees for unethically availing themselves of coronavirus relief funds, according to a source familiar with the matter.

The bank believes some of its staffers made 'false representations in applying for coronavirus relief funds for themselves', defrauding the U.S. Small Business Administration, David Galloreese, head of Human Resources, said in an internal memo seen by Reuters.

A Democratic-led panel has already found more than 600 loans went to companies that should have been ineligible because they had been barred from doing business with the government. Another 350 loans went to contractors with previous performance problems.

Nearly $3 billion went to businesses that were flagged as potentially problematic by a government-contracting database.

Committee Chairman James Clyburn said then that the Trump administration should have done more to prevent fraud.

'Taxpayers should not have to choose between quickly getting aid to those who need it and wasting federal funds. And there are simple steps that could have been taken to improve oversight and reduce fraud,' Clyburn said.

A spokesman for the SBA said its 'committed to working with federal partners to ensure PPP funds are used in accordance with the program’s intent'.

Audits will focus on loans of more than$2 million.

The Trump administration says the PPP has saved some 51 million jobs at a time when much of the U.S. economy has been shuttered due to the coronavirus. Economists say the actual impact is far lower, likely between 1 million and 14 million jobs.

MIT economics professor David Autor said: 'It seems that a lot of that cash went to businesses that would have otherwise maintained relatively similar employment levels.'

The scheme also came under fire after it emerged some large publicly traded company got loans despite their likely ability to get the money from private financial sources. So did large organizations like the U.S. Roman Catholic Church.

Some that were less directly impacted by the pandemic, such as manufacturing and construction, also received a greater proportion of the loans than the hard-hit restaurant and hotel industries. Many law firms and private equity companies also obtained loans.

Businesses owned by politicians also borrowed from the program, including a minor league baseball team owned by the family of the governor of Ohio.

Other recipients included Kanye West's clothing and sneaker brand Yeezy, Ice Cube's professional basketball league, Planned Parenthood clinics in more than two dozen states, the nonprofit arm of the anti-tax group headed by Grover Norquist, Americans for Tax Reform, as well as Rosenblatt Securities, one of the biggest names on the floor of the New York Stock Exchange.

High-profile evangelical megachurches, including several with pastors who have backed Trump, also received loans after religious entities were permitted to seek aid even if they performed only faith-based functions.

Among the Trump-linked churches that received PPP loans was First Baptist Dallas, the Texas megachurch where senior pastor and White House ally Robert Jeffress hosted Vice President Mike Pence for a pre-July 4 service. Jeffress' church reported retaining nearly 300 jobs with its loan of between $2 million and $5 million.

Some major supporters of Trump also benefited. Muy Brands Inc., a San Antonio, Texas-based franchisee with more than 750 Wendy's, Taco Bell and Pizza Hut restaurants, received between $15 million and $30 million between three entities.

Muy Brands CEO James Bodenstedt is a major donor to the president. He has given $300,000 to the Trump Victory PAC since the start of this year, according to federal campaign finance records.

Media companies, including Newsday and American Media, former owner of the National Enquirer, got loans of up to $5 million.

Introduced in April to help companies weather the economic shutdown brought on by COVID-19, the PPP in four months was responsible for 5.21 million loans ranging from less than $50,000 each to more than $5 million.

The rules stipulated that businesses with limited financing options could seek a loan that would later be fully forgiven. The loans would ultimately be paid by taxpayer money, not the businesses that received them from banks, if at least 60 percent was spent on payroll - with the rest going to meeting expenses such as rent, interest on mortgage or utilities.