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COVID Frauds of the Week: More Price Gouging and PPP Fraud

Posted  August 21, 2020

As the COVID-19 pandemic remains omnipresent in our daily lives, so too do the fraudsters who seek to capitalize on the crisis and line their own pockets.  Fortunately, government regulators have remained vigilant in rooting out fraud and protecting the public.   Just in the past week, federal prosecutors have busted two large schemes seeking to profit off other’s pain.

First, the U.S. Attorney’s Office for District of New Jersey announced that two import companies, CSG Imports LLC and KG Imports LLC, have agreed to sell approximately 11 million PPE items at cost as part of a settlement to resolve charges under the Defense Production Act of 1950.  The government originally seized these items in April 2020, including millions of vital N-95 and three-ply face masks, based on allegations that the two companies were price gouging desperate customers as the pandemic hammered the Northeast.  As part of their deferred prosecution agreements, the companies will also disgorge $400,000 in profits to companies that purchased PPE at marked-up prices.

Second, a cadre of government investigators—including the U.S. Attorney for the Southern District of New York, the FBI, the SBA Inspector General, and the IRS—arrested New York resident Sheng-Wen Cheng in connection with an alleged scheme to fraudulently obtain over $7 million in loans under the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan (“EIDL”) Program.  These programs are designed to keep small businesses afloat—and their staffs employed—as they struggle through the COVID-related economic downturn.  According to the government, Cheng falsely told the SBA and several financial institutions that his companies employed over 200 people at a cost of $1.5 million per month in wages.   In reality, these companies employed no more than 14 people, according to the government press release.  As a result of these alleged misrepresentations, Cheng obtained over $2.8 million in PPP loans, much of which he has spent on personal expenses, converted to cash, or transferred oversees.  The government has charged Cheng several fraud-related crimes that could land him in prison for decades.

Despite the government’s best efforts, these COVID-related frauds continue to run rampant, threatening both the public fisc and health.  Whistleblowers can play a critical role in helping the government stay in front of these emerging schemes by exposing wrongdoing under whistleblower rewards laws.   If you have information about frauds related to COVID-19 or any other fraud on government programs, contact us.


Tagged in: COVID-19, Government Loan Programs, Government Programs Fraud, Pricing Fraud,