first fraud case involving a small business PPP program

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WASHINGTON – Two New England businessmen have been charged with illegally trying to raise hundreds of thousands of dollars in Paycheque Protection Program loans, the first fraud case in the nation involving the massive effort to save small businesses from the coronavirus crisis.

And the head of the criminal division of the US Department of Justice has said he expects more cases in the future. Tuesday’s case, filed in Rhode Island, is the first of several investigations launched by federal authorities since the massive program began, he said.

“What we’re seeing coming out of Rhode Island is what’s happening across the country,” Assistant Attorney General Brian A. Benczkowski told USA TODAY. “We have a lot of leads. “

On Tuesday, prosecutors indicted David A. Staveley, 52, of Andover, Mass., And David Butziger, 51, of Warwick, Rhode Island, with conspiracy to obtain forgivable loans guaranteed by the Small business management. The loans amounted to nearly $ 544,000, according to the US Department of Justice.

They claimed to have dozens of paid employees in four different entities when in fact no employee worked for any of the companies, federal prosecutors said Tuesday.

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Congress created the PPP in March as part of the CARES Act, the federal response to the COVID-19 pandemic, which forced social distancing measures that have forced millions of small businesses to contract or shut down entirely. They allocated more than $ 660 billion to the program, which approved loans for some 4 million businesses.

The program offers loans of up to $ 10 million to businesses with 500 or fewer workers that were operating when the COVID-19 pandemic began to affect the country. Loans are written off completely if at least 75% of the money is spent on retaining or rehire employees. The rest must be spent on business expenses such as rent or utilities.

Benczkowski, who is leading the enforcement effort, said inquiries were already in “double digits” and were scattered across the country. He declined to attach a specific number to open investigations, saying new information continues to be assessed by federal prosecutors in many of the department’s 94 jurisdictions.

In preparation for the enforcement effort, the deputy attorney general said authorities built on their previous fraud prosecutions following Hurricane Katrina in 2005 and the financial crisis in 2008, when billions of dollars Federal money poured in to help with collections.

The National Center for Disaster Fraud, established in the aftermath of Katrina, now serves as a clearinghouse for information on potential crimes related to the SBA program.

“It’s important that we deal with each of these cases,” Benczkowski said. “We have the resources we need to work on this. We take full advantage of the 94 US law firms across the country.

Staveley and Butziger are charged with Conspiracy to Make False Statements to Influence the SBA and Conspiracy to Commit Bank Fraud. In addition, Staveley,who allegedly impersonated his brother in real estate transactions, is charged with aggravated identity theft and Butziger is charged with bank fraud.

The lawyers for the two men were not immediately identified in court documents.

According to unsealed court documents Tuesday at U.S. District Court in Providence, Rhode Island, the couple applied for loans for businesses that were not doing business before the start of the COVID-19 pandemic and had no money. ‘salaried employees. In one case, a loan was requested for a Rhode Island restaurant that the plaintiff did not own, according to the federal complaint.

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Staveley and Butziger reportedly discussed via email the creation of fraudulent loan applications and supporting documents to apply for the loans, according to billing documents.

Staveley requested loans of more than $ 438,500, claiming he had dozens of employees at three restaurants he owned, two in Warwick, Rhode Island, and one in Berlin, Massachusetts, according to the DOJ compliant.

A Department of Justice investigation determined that one of Rhode Island’s restaurants, the former Remington House, and the Massachusetts restaurant, On The Trax, were not open until the start of the COVID-19 pandemic , at the time the loan applications were submitted. , or at any time thereafter, depending on the complaint. In addition, Staveley neither owned nor had a role in Rhode Island’s second restaurant, Top of the Bay, for which he was seeking financial relief, according to the DOJ.

Butziger filed an application on April 6 seeking a $ 105,381 SBA loan under the PPP as the owner of an unincorporated entity named Dock Wireless, according to the complaint.

Butziger claimed in documents filed with the bank and in a phone call with an undercover FBI agent posing as a bank compliance officer that he planned to use the loan to pay seven full-time employees on Dock Wireless’s payroll, including itself, a claim that turned out to be false, according to the DOJ.

“Tens of millions of Americans have lost their jobs and have seen their lives plunged into chaos due to the coronavirus pandemic,” said US Attorney Aaron L. Weisman for the District of Rhode Island. “It is unreasonable for anyone to attempt to steal a program designed to help hard-working Americans continue to be paid so that they can feed their families and pay some of their bills.”

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