Catch of the Week: A Tale of Two Cons
The start of February 2022 brought resolutions in two different COVID-19 fraud cases, one in the Paycheck Protection Program and one in the Pandemic Unemployment Assistance program. Both involved scammers with previous criminal records who fraudulently obtained COVID relief money.
The Department of Justice continues to prioritize enforcement against fraudsters who take advantage of the Paycheck Protection Program, even when the amounts involved are relatively low. On February 7, the DOJ announced a settlement with Christopher Construction Company, an Atlantic County, NJ construction company, and one of its owners, Dennis Christopher, for fraudulently receiving $255,507 in PPP funds. The company falsely certified in its loan application that none of the owners were subject to a criminal indictment, which would disqualify them from eligibility. However, Dennis Christopher knew full well that co-owner Pat Christopher had been indicted in August 2019 for charges related to theft, embezzlement, and tax fraud. Interestingly, Pat Christopher was the Relator in the qui tam case. In other words, he blew the whistle on his company and co-owner being disqualified from receiving PPP money because of his own criminal history. (Christopher Construction appears to be a family business – and likely experiencing some serious family drama right about now.) In this case, the defendants admitted to their wrongdoing, which is unusual in fraud settlements.
The damage calculation in this case reveals how the DOJ is likely to handle similar matters. PPP loans are eligible for forgiveness, but in this case, the defendants had not applied for the loan to be forgiven. They returned the full amount of the loan before the case settled. The settlement consisted of a criminal penalty plus restitution of $12,775 to cover the loan processing fees the government paid to the lender bank. The cost of loan processing is an easily-overlooked element of damages in FCA cases, but it is a grounds for restitution even when the government has already gotten back the loan money. The defendants also had to pay criminal penalties of $40,550. To read more about how the DOJ arrived at that number, check out our article on FCA damages calculations.
The case is also a reminder that while the Small Business Administration loosened its requirements about examining PPP applicants’ criminal histories, some restrictions are still in force. Businesses with a 20% or more owner who was subject to indictment at the time of the application are ineligible, and there is a five-year lookback for owners’ criminal history of fraud, bribery, embezzlement, or a false statement in a loan application or application for federal financial assistance.
PPP loans were earmarked to support businesses and business owners affected by COVID-19. For workers, the Pandemic Unemployment Assistance program significantly expanded eligibility for unemployment to people previously excluded from benefits. Gabriela Llerenas, who previously worked at California’s Employment Development Department, the state agency that handles unemployment benefits, exploited this expanded benefit program for her own gain. This was not her first time using her knowledge of safety net programs to benefit herself. She was previously convicted of fraud in administering disability payments when she worked at the EDD. This time, sensing opportunity in the COVID crisis, she obtained almost $4.3 million in unemployment by filing fraudulent applications in the names of about 200 people. She would falsely certify that these individuals were self-employed, often as cake decorators, and entitled to benefits. While millions across the nation desperately sought their rightful payments from overwhelmed unemployment systems, including at least 100,000 Californians, Llerenas managed to fraudulently get 197 debit cards loaded with benefits delivered to her home and other associated addresses. She was sentenced to spend 63 months in federal prison and pay nearly $4.3 million in restitution. On top of that, her guilt about obtaining benefits for fictional cake decorators may make it hard for her to ever again enjoy cake. Large-scale unemployment fraud schemes like hers are a priority for DOJ enforcement.
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