Coronavirus stimulus fraud arrest: How a small-town tip exposed a $500K fraud scheme
Two men allegedly sought more than $543K in bogus PPP loans
What started as a tip that landed on a small-town Massachusetts police chief’s desk led to charges against two men who allegedly tried defrauding the government of thousands of novel coronavirus relief dollars.
The 2,800-person town of Berlin's police department was investigating a case involving liquor licensing when Chief Thomas Galvin received information in connection to what he suspected was a possible COVID-19 crime scheme, he told FOX Business.
His tip to the FBI and U.S. Attorney’s Office led to the first arrests nationwide for alleged Small Business Administration Paycheck Protection Program loan fraud.
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“It just shows that it doesn't matter what level – state, local, federal – we all work together and are working towards the same goal,” Galvin said Wednesday when reached by phone.
Galvin said he learned about the results of his tip on Tuesday – the same day the charges were announced – in an email from the U.S. Attorney’s Office.
“I'm just glad the information that we had was able to get the FBI to what they found,” he said.
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David A. Staveley, 52, and 51-year-old David Butziger were charged Monday for allegedly working together in seeking $543,959 in SBA PPP loans from April 6 to April 27, according to affidavits pertaining to their arrests.
The loans are meant to provide aid to struggling businesses with fewer than 500 workers so that they can maintain payroll and pay rent while shutting down their businesses during social distancing edicts. Large portions of the “loans” will be later forgiven if payroll is maintained during the crisis or restored by June 30, 2020.
Through Oakland Beach Restaurant Group LLC, the men claimed this was a running restaurant called Top of the Bay in Rhode Island (Google Street View)
They allegedly claimed to employ dozens of workers at four nonfunctioning businesses when there were actually “little to no employees working for any of the listed entities” – and court papers show they emailed each other about their sleazy plans.
“I can create a bull s--- 2020q1 for Oakland beach if you want,” states an April 11 email from Butziger to Staveley, who had previously changed his name from Kurt Sanborn but also went by the names Kurt David Sanborn and David Sanborn, according to the affidavit for their arrests.
Staveley responded: “We are going to need the same stuff for Oakland Beach and Apponaug Restaurant Groups. However we dream that up.”
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Oakland Beach Restaurant Group LLC, which sought a loan for $185,750, and Apponaug Restaurant Group, with a loan application for $144,050, represent two of the business entities allegedly used in the scheme, court papers show.
Through Apponaug Restaurant Group LLC, the men claimed this was a running restaurant called Remington House in Rhode Island (Google Street View)
The application for the third, New Flat Penny LLC, is what ultimately caused their plan to crumble.
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Known as On The Trax, the Berlin restaurant was technically owned by Staveley’s brother, identified in court papers as “G.S.,” but the business was shut down after its liquor license was revoked on March 10.
Butziger emailed all employees March 9 notifying them of the restaurant’s closure and, according to the court papers, the staff had not even received their final paychecks. It was unusual, then, for the April 6 PPP loan application to indicate the business had 22 employees with an average monthly payroll of $36,000.
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Through New Flat Penny LLC, Butziger and Staveley were seeking a forgivable loan in the amount of $108,777.50, and the application “was signed by an individual purporting to be G.S,” according to court documents.
Through New Flat Penny LLC, the men claimed this was a running restaurant called On The Trax in Berlin, Massachusetts (Google Street View)
In total, Staveley sought nearly $440,000 in loans for the three restaurants, authorities said.
Butziger allegedly claimed to be the owner of a fourth establishment, Rhode Island-based Dock Wireless, in seeking a $105,381.50 loan.
They were charged with conspiracy to make false statements to influence the Small Business Administration and conspiracy to commit bank fraud. Staveley was also charged with aggravated identity theft and Butziger was charged with bank fraud.
Derek Cohen, an unrelated former federal prosecutor and white-collar defense attorney at international law firm Goodwin, told FOX Business he suspects “the timing of these first arrests, which were only a few days before the end of the first amnesty period that was identified within the SBA guidance, was probably not a coincidence.”
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“This type of case is exactly the type of case that I would expect to see being brought here. The allegations are not really on the edges of somebody putting in an application and maybe making sort of an arguable mistake,” Cohen said. “If the allegations are true, it's pretty brazen fraud – it's claiming to own businesses you don't own, to have employees you don't have, to use fake names.”
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Butziger and Staveley were released on unsecured bond following their arraignment, a spokesperson for the U.S. Attorney’s Office said.
The Associated Press contributed to this report.