Texas man charged with coronavirus relief fraud in DOJ crackdown

Yates sought $5M by claiming to have 400 employees, payroll of $2M: DOJ

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Samuel Yates, 32, of Maud, Texas, has been charged with violations of wire fraud, bank fraud and false statements to a financial institution and to the Small Business Administration after allegedly seeking more than $5 million dollars in Paycheck Protection Program loans through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, according to a press release by the Department of Justice on Tuesday.

According to court documents, Yates allegedly made two fraudulent PPP loan applications to two different lenders.

In the application submitted to the first lender, Yates allegedly sought $5 million in PPP loan proceeds by fraudulently claiming to have 400 employees with an average monthly payroll of $2 million. In the second application, Yates claimed to employ over 100 individuals and was able to obtain a loan for over $500,000. With each application, Yates submitted a list of purported employees that he obtained from a publicly available random name generator on the internet. He also submitted forged tax documents with each application.

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“Today’s arrest should serve as a strong deterrent to anyone considering exploiting the COVID-19 pandemic to enrich themselves through fraud," said Special Agent in Charge Ryan L. Spradlin of U.S. Immigration and Custom’s Homeland Security Investigations (HSI) Dallas. "These individuals have no concern for legitimate businesses whose employees and their families are hurting financially during these unprecedented times.”

U.S. Attorney Joseph D. Brown of the Eastern District of Texas said that "any time the government provides large amounts of money to the public, there are people who will try to cheat the system."

“We encourage lenders to be very careful, and to report suspicious applications," Brown added. "It is a priority of the Department of Justice to deter and prosecute this type of fraud.”

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The charges against Yates are the latest development in the DOJ's investigation into PPP fraud claims.

Last week, Shashank Rai, 30, of Beaumont, Texas, was charged with wire fraud, bank fraud and false statements to a financial institution and to the Small Business Administration after allegedly seeking more than $10 million in PPP loans, according to a press release by the Department of Justice.

According to court documents, Rai allegedly made two fraudulent claims to two different lenders.

In the application submitted to the first lender, Rai allegedly sought $10 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of $4 million. In the second application, Rai allegedly sought approximately $3 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of approximately $1.2 million.

The Texas Workforce Commission provided information to investigators of having no records of employee wages having been paid in 2020 by Rai or his purported business, Rai Family LLC. In addition, the Texas Comptroller’s Office of Public Accounts reported to investigators that Rai Family LLC reported no revenues for the fourth quarter of 2019 or the first quarter of 2020. Materials recovered from the trash outside of Rai’s residence included handwritten notes that appear to reflect an investment strategy for the $3 million.

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“When an individual cheats the Paycheck Protection Program out of money, it deprives hard-working Americans and deserving small businesses," said Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation Office of Inspector General (FDIC OIG). "The FDIC OIG is committed to working with our law enforcement partners to investigate financial crimes in order to preserve the integrity of the nation’s banking sector.”

SBA Inspector General Hannibal “Mike” Ware said small businesses are "counting on this program" and that the federal government and state and local officials will "safeguard it to maintain the public trust."

Brown called Rai's behavior "very brazen" and said those submitting SBA loan applications "need to understand that there are people checking on the representations made, and those representations are made under oath and subject to the penalties of perjury."

"Federal agencies are watching for fraud, and people who lie and try to cheat the system are going to be caught and prosecuted,” Brown added.

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The CARES Act, enacted March 29, is designed to provide emergency financial assistance to millions of American small businesses suffering from the coronavirus pandemic. The act originally authorized up to $349 billion in forgivable loans through the PPP to small businesses for job retention and certain other expenses. In April, Congress authorized over $300 billion in additional PPP funding.

The PPP allows qualifying small businesses to receive loans with a maturity of two years and an interest rate of 1 percent. PPP loan proceeds must be used by businesses on payroll costs, interest on mortgages, rent and utilities. The interest and principal can be forgiven if businesses spend the proceeds on these expenses within eight weeks of receipt and use at least 75 percent of the forgiven amount for payroll.

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