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Pandemic Relief Fraud – Feds Will Prosecute Fraudulent PPP Loans

OKABE & HAUSHALTER May 12, 2021 Federal Crimes

When the pandemic first hit and businesses across the country were forced to shut their doors Congress acted quickly to provide relief for businesses and their employees. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March of 2020 and authorized billions of dollars in forgivable loans to help small businesses via the Paycheck Protection Program (PPP). The intention was to speed the money out to businesses and it was an open invitation for some to falsify their circumstances and apply for the readily available funds. Federal prosecution of persons who obtained loans fraudulently has increased dramatically since the beginning of the year and is expected to ramp up in the coming months.

At Okabe & Haushalter, our Los Angeles federal criminal defense attorneys understand that people may have acted in desperation during a crazy time and could now – or soon – find themselves on the receiving end of a federal lawsuit and in need of a superior legal defense.

What PPP Loans are For

The Paycheck Protection Program was set up to provide loans to small businesses so that they could afford to pay their employees while businesses were closed. A business that qualifies can receive an unsecured loan with a 1% interest rate but the money must be used for certain business-related purposes – such as payroll costs. And the loan is eligible to be forgiven altogether if the money gets used within a certain period of time and to meet payroll expenses.

Because it was more important to get the money out than thoroughly screen loan applicants, it became too tempting for people to take advantage of what seemed like easy, almost free money. Now that things are no longer as hectic, there has been more time to review loan applications and the federal government wants its money back.

Federal Prosecutors are Taking Serious Action Against PPP Loan Fraud

Although there have been PPP fraud prosecutions almost from the beginning of the program, it is apparent the Feds are stepping up their game. Earlier this year, US Attorney’s Offices across the country began adding the position of ‘PPP Loan Fraud Coordinator‘ to their staff. The position was created for the purpose of prosecuting PPP loan fraud cases. Prosecutors will pursue two groups of people.

  • those that lied to get their loans
  • those who engaged in coordinated efforts to get large sums (think organized crime)

And to demonstrate that the party is now over, the penalties for having received relief monies under fraudulent circumstances will be no joke. Prosecutors intend to bring the full federal arsenal of charges including both criminal and civil penalties. Two recent cases in California illustrate why federal prosecutors intend to aggressively pursue fraudulent loans.

  • In March, Los Angeles area resident Hassan Kanyike pled guilty to wire fraud for obtaining $1 million in fraudulent loans from the PPP for his used-car business. He had falsified documents and lied about the number of employees he had. The plan had almost worked but law enforcement was able to arrest Kanyike at the airport before he left for another country where $762,000 of the relief money awaited. Kanyike now faces up to 20 years in prison and must repay the entire loan amount.
  • Mustafa Qadiri of Irvine was recently charged with multiple counts of bank fraud, wire fraud, aggravated identity theft, and money laundering after obtaining $5 million in PPP loans for one of 4 mortgage companies that no longer exist. Federal prosecutors say Qadiri assumed the identity of another to obtain the funds and then used them for extravagant vacations, luxury vehicles, and other personal expenses.

As these cases – and many more across the US – indicates, the Feds are not taking kindly to those who took advantage of an urgent situation to gain personal benefit. A serious effort is being made by the federal government to recoup billions of dollars that were unlawfully collected and improperly used.

The Los Angeles federal criminal defense lawyers at Okabe & Haushalter know that many California PPP loan recipients may be targeted for investigation and we are prepared to help small business owners defend fraud charges. If you are being investigated or have been charged with fraud in connection with receiving PPP loan proceeds, click here to contact us for a free consultation or call our office at 310-430-7799.