Texas leads SBA pandemic relief loan fraud in national lawsuits

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The director of a Houston funeral home tried to embezzle millions of dollars in loans meant to help small businesses during the pandemic, claiming to own businesses owned by Italy’s largest oil and gas company, federal investigators have said .

Jase DePaul Gautreaux, the director of Wingate Funeral Home in the Almeda area, has filed several fraudulent claims with bogus companies and inflated salaries to qualify for more funds, in a scheme to steal more than 13 million dollars. dollars of taxpayer dollars, federal prosecutors said.

Gautreaux is one of a handful of Texans accused of attempting to defraud the Coronavirus Aid, Relief, and Economic Security Act, or CARES paycheck protection program, according to the Justice Department. His is among four Houston and eight statewide cases currently on trial, but at $ 13 million, may be one of the most important sums attempted by an individual. As the federal government begins to bring cases like Gautreaux’s to court, Texas leads the country in PPP fraud accusations, which include more than 50 people indicted nationwide by the criminal division of the Ministry of Justice.

The PPP program provides forgivable loans guaranteed by the Small Business Administration to cover, primarily, salary expenses to keep people employed and businesses operating during the pandemic.

With a budget of $ 659 billion, the PPP loan received one of the highest fund allocations of any program included in the $ 2.2 trillion CARES law, passed by Congress in March.

“We estimate that there is over $ 1 billion in verifiable criminal fraud in the payroll protection program,” said Tom Miller, CEO of risk management firm ClearForce, a company that has worked in the discovery of fraud with an SBA-qualified PPP loan lender. What is of concern is that the verifiable criminal fraud is only a subset of the total fraud that is likely to exist in the program.

More in Texas

SBA data shows that nearly 417,300 P3 loan applications have been approved in Texas as of August 8, when the program ended, amounting to $ 41 billion. The number of PPP loans issued in the state represents 8% of all loans approved in the country, a share surpassed only by California with 12% and Florida with 8%.

But even though Texas has received fewer loans among the top three states, it holds the largest share of all fraud cases prosecuted by the DOJ, with more than 20% at the end of August.

Texas may have the most because the state “just happens to have the investigative and forward-looking resources to be ‘the first to market’,” said Victor Hartman, an attorney and former FBI agent at Houston who worked in cases such as the fraud that brought down the Enron Corporation.

Another reason could be either because small businesses here were quicker to apply or because the SBA and approved lenders worked faster to meet the region’s demand for assistance, said Andrew Goldstein, lawyer. at Cooley LLP.

“At the start of the P3 program, Texans received more loans than in any other state,” said Goldstein, who was a senior deputy to Special Advisor Robert Mueller.

Goldstein explained that as of April 16, about two weeks after the start of the P3 program, nearly 135,000 loans had already been approved in Texas. By comparison, California had around 113,000 at the time and Florida 89,000. He said the number of prosecutions would level out across states in the coming months as investigators continued to prioritize fraud. to COVID-19.

Car show

The criminal complaint against Gautreaux reflects several characteristics that PPP fraud has in common, said Juan Vasquez, a lawyer at Chamberlain Hrdlicka in Houston, who specializes in tax controversies and auditing. He noted that typical examples are “filing applications for companies that do not exist or for which the applicant has no real authority to apply, or providing false information about the companies such as the number of ’employees or the amount of actual labor costs.

When the loan is secured, Vasquez said another fraudulent behavior is to use funds for ineligible expenses, usually on expensive goods for personal use.

Cars are at the top of the shopping list for many people billed by the DOJ. Gautreaux reportedly sent a check for nearly $ 300,000 to a New York dealership to buy two limousines and two hearses. Federal authorities have recovered some of the money he is accused of pocketing. Gautreaux’s attorney, Joshua Lake, declined to comment for this story.

But it was the glare of a luxurious Lamborghini Urus that was reportedly bought on a PPP loan by fellow Houston resident Lee Price III that brought his case more notoriety. The criminal complaint against him says he also bought a Ford pickup truck and spent money on strip clubs on a loan of $ 1.6 million.

“The government has not presented me with any evidence to suggest that my client is guilty,” said Price’s attorney, Kent Schaffer. “They focus on how my client spent the money rather than how the money was obtained; they assume that all the money he spent was from the loan and not from his business.

The criminal complaint accuses Price of applying for several loans from companies that do not have employee and income records that must be reported to authorities in Texas. He says Price claimed to have 50 workers at one of the companies and that he lied about his criminal record, particularly pending felony charges unrelated to tampering with a government record.

According to the DOJ, Michael George McQuarn of Austin chose to spend part of a $ 2 million loan on a Rolls Royce and a 26-foot Pavati Wake boat. In another case, the agency said Fahad Shah, a wedding planner from Murphy, Texas, purchased a Tesla vehicle with a portion of the $ 1.5 million he received.

Investments in real estate and even cryptocurrency are also popular elements. The latter was the main expense mentioned in the indictment against Joshua Thomas Argires of Houston. He is said to have filed fraudulent claims for over $ 1.1 million on behalf of alleged small businesses called Texas Barbecue and Houston Landscaping. Her lawyer, Deputy Federal Public Defender Aisha Dennis, declined to comment on her office’s policies.

Lola Shalewa Barbara Kasali, 22, faces charges including making false statements to a financial institution to obtain nearly $ 2 million from two companies named Lola’s Level and Charm Hair Extensions. Prosecutors said the funds were confiscated before they were spent.

The government’s challenge to crack down on a program as important as the PPP, as well as other packages of the CARES Act, has unprecedented characteristics.

“The past 10 years or so have created an enabling environment for fraudsters, and the COVID epidemic has created a rich target opportunity for them,” said Jon Coss, Managing Director and Founder of Pondera Solutions at Thomson Reuters Corporation, who specializes in data analysis to fight fraud.

Coss explained that easy access to identities stolen from massive security breaches and technical advancements to create fake ones offers fraudsters the opportunity to dramatically expand their operations. They are now more able to hide among legitimate applicants, as government entities are always technologically behind and under increased pressure to offer more online and readily available services.

The CARES Act, however, created a host of oversight measures that included multiple agencies. At a minimum, the government has said all loans of $ 2 million or more will be audited. The ongoing PPP fraud cases show investigators are cracking down on lower amounts as well, even with the limitations COVID-19 has placed on investigators and the courts.

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Twitter: @oliviaptallet

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