The office of the U.S. attorney for Eastern Washington has indicted suspects in 10 cases of fraud related to the Paycheck Protection Program since it established a COVID-19 fraud strike force in February. 

The strike force has recovered about $3.5 million so far and is currently investigating about 30 cases.

Vanessa Waldref, U.S. attorney for Eastern Washington, says many individuals and companies took advantage of PPP funds when they weren’t entitled to them.

“There were critical funds that were going to the right places, but those funds ran out very quickly because individuals and businesses took advantage,” Waldref says. “People have used these funds for their own personal purposes, and we want to move quickly on those cases so that we can recover as much as we possibly can for the American taxpayers.”

The funds recovered by the strike force are from various parts of Eastern Washington, yet represent a fraction of a percentage of the total funds disbursed by the SBA to the area for COVID-19 relief. In Spokane County alone, more than $786 million went to 6,755 businesses through the federal relief program, as previously reported by the Journal.

Assistant U.S. attorney Dan Fruchter is head of the COVID-19 fraud strike force, which includes four assistant U.S. attorneys, eight support-staff employees, and six law clerks. He says some who fraudulently received PPP funds used the money to buy houses, vehicles, and boats. Those who committed PPP loan fraud range from individuals who reported owning a nonexistent business to real companies that provided false information, such as inflating the number of employees at the company.

Fruchter says in addition to the $3.5 million in funds that were actually disbursed, the strike force has recovered several million in attempted loss, or fraudulent requests for funding that were denied. 

 “The cases currently under investigation involve actual and attempted loss of more than $10 million,” Fruchter says. “The largest case we have charged was a $3 million case; the smaller ones are $20,000 or $30,000. We've also seized homes, bank accounts, quite a few cryptocurrency accounts, and some vehicles.”

Fruchter says recovered funds are typically sent either to the Small Business Administration or to the U.S. Crime Victims Fund.

On a national scale, on Aug. 26, the U.S. Secret Service returned to the SBA about $286 million in fraudulently obtained Economic Injury Disaster Loans, according to a press release from the Secret Service. The federal law enforcement agency has opened more than 3,850 inquiries and investigations regarding pandemic-related fraud, the release says.

So far in Eastern Washington, one person, 42-year-old Roshon Edward Thomas, of Spokane, has been sentenced for fraudulently obtaining COVID-19 relief funding for small businesses. Thomas (no relation to this story’s author) pleaded guilty in May to falsely claiming he owned a tattoo parlor and a clothing design company, for which he sought at least $54,900 in COVID-19 relief funding. Thomas was sentenced in August to full restitution of the funds by maintaining employment and to probation with court supervision.

Others have been indicted for securing PPP funding by allegedly lying to the SBA in saying funds would be used for working capital for a real business, then using the funds for their personal benefit, such as purchasing a private home.

“It's an interesting bunch,” Fruchter says of those indicted. “They run the gamut of people who essentially aged out of committing other kinds of crimes—people who are too old to be holding up a liquor store—to pillars of the community-type business owners with no criminal history.”

Fruchter says that it’s common for PPP fraud investigations to uncover evidence of other crimes, such as identity theft. 

“They'll get somebody's Social Security number or other identifying information, and then they'll use that to create a fake bank account and also to get a loan in the name of this other person,” Fruchter says. “It's hard to prove that you were the victim of identity theft when the bank account is in your name. We try to prioritize and fast-track those cases so that we can get those victims back on their feet as quickly as possible.”

Most charges brought against those indicted for PPP fraud are under a statute called wire fraud, for which the maximum sentence is 20 years in prison, he says.

“We've been arguing for prison sentences for most of the cases,” Fruchter says.

Waldref says the strike force primarily has been focused on bringing criminal charges against those alleged to have abused the federal relief funds. However, in some cases, the strike force pursues civil charges to recover funds.

“In civil cases, there would not be jail time as a consequence, but there would be financial penalties,” Waldref says. “That's where we've recovered some funds in cases that would be difficult to prove up on the criminal side, but where there are concrete civil claims that we can make against companies.”

Generally, civil cases are pursued under the False Claims Act, Fruchter says, which is typically invoked in charges of fraud involving federal funding. 

“The False Claims Act provides for treble damages plus additional penalties, meaning fraudsters are liable for more than 3 times the amount of federal funding that they fraudulently obtained,” he explains.

Fruchter says the strike force has received tips regarding PPP fraud from a variety of sources.

“Folks in the community are a huge asset for us in the fight against fraud,” he says. “We've gotten some of our best cases from concerned employees, bookkeepers, and even billers in a health care fraud context.”

Fruchter encourages those who suspect someone of PPP fraud to report their suspicions to the office of the U.S. attorney for Eastern Washington, FBI, or SBA’s COVID-19 fraud hotline. 

“They can make complaints anonymously,” Fruchter says. “We'll protect their identities as long as we possibly can.”

Some fraudsters incriminate themselves publicly.

“There are a few folks who have posted pictures of their new boat on Instagram, saying that they bought it with PPP money,” Fruchter says.

Many cases come from financial institutions, which have noticed unusual activity, he says. 

“For example, the bank can see that somebody got a large CARES Act funding stream one day, and then the next day they transferred it all into a cryptocurrency account,” Fruchter says. The CARES Act established PPP, and the PPP funds are backed by the SBA.

The strike force has been working with several agencies to identify PPP fraud cases, including the U.S. Department of the Treasury inspector general for tax administration, the Secret Service, and the Internal Revenue Service.

“We have 15 federal agencies that are jumping in to help us do the investigations, looking at people's tax records and employment records, (as well as) their history in seeking loans representing to the federal government that they were, in fact, legitimate businesses that would be eligible for these loans,” Waldref says.

One method of identifying PPP fraud cases, she says, has been investigating companies created after February 2020 that also applied for PPP funds.

“They're not eligible for the money in the first place, but it's also a pretty good red flag,” Waldref says. 

After working through nearly a dozen indictments, the strike force is more adept at identifying, investigating, and indicting those suspected of PPP fraud, Waldref asserts.

“We have several ongoing investigations,” she says. “We have many more potential cases that we're aware of. It's a matter of our bandwidth and being able to bring forward the most impactful cases for the community.”

Fruchter says he’s not surprised that many people took fraudulent advantage of PPP funds.

“I think it was known when the program was created that some of the money would be diverted to fraud,” he says. “That's what happens when there's a lot of money and there's not many safeguards in place.”

In May, the SBA released a report by the office of the inspector general for the agency which found that SBA lacked organizational structure to address potentially fraudulent PPP loans.

“Management stated this was partly due to the speed of the delivery of PPP and the continuous and rapid discovery of different kinds of fraud schemes,” the report states. “Lenders also were not always clear on how to handle PPP fraud or recover funds obtained fraudulently from the PPP that remained in the borrower’s account. SBA did not provide lenders sufficient specific guidance to effectively identify, track, address, and resolve potentially fraudulent PPP loans.”

While the office of the inspector general was generating the report, the SBA established a Fraud Risk Management Board.

Peggy Delinois Hamilton, SBA special counsel for enterprise risk, says the agency is working to prevent future fraud cases and to rectify issues the SBA faced during the prior administration.

“We’ve implemented enhanced controls across our programs to mitigate the risk of resources getting into the wrong hands,” Delinois Hamilton says.