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Prosecutors Preparing for Next Stage of Coronavirus Relief Fraud

Posted on Sep. 2, 2020

Applications for forgiveness of the pandemic relief loans could be the next fruitful grounds for uncovering opportunistic fraudsters, according to one U.S. attorney.

Investigators and prosecutors have already started going after fraudulent applications for Paycheck Protection Program loans, and soon expect to see fraud at the disbursement stage when the loan forgiveness applications start rolling in, Matthew Schneider, U.S. attorney for the Eastern District of Michigan, said on a September 1 webinar hosted by Baker Tilly Virchow Krause LLP.

Because the PPP loans can be forgiven in some situations, “there will be fraudsters who are making up numbers to make it appear that their loans should be forgiven and it should not,” Schneider said.

Shortly after Congress created the PPP in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), the first charges for false statements on loan applications were announced. Those announcements included details such as defendants’ alleged lies about who owned what businesses and their extravagant purchases like Rolls-Royce vehicles and Rolex watches.

Schneider said the PPP loan application fraud will probably be refueled if Congress has to renew funding to the program because the pandemic continues.

Because Congress allocated a specific amount of money for making the PPP loans, fraudsters can draw funds away from deserving applicants, Schneider said. “I think it can really be said that you are actually taking food out of the mouths of people because they won’t have the ability to get that money,” he said.

Schneider noted that pandemic-related fraud hasn’t been limited to PPP loans, but also includes fraud involving the recently expired increased unemployment benefits. That fraud used to happen occasionally, but the more generous benefit attracted more bad actors, he said.

The unemployment schemes generally involve insiders at state agencies who override the normal fraud prevention measures, and just like PPP fraud, can lead to lavish spending with funds meant to keep desperate people fed and housed, Schneider said.

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