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COVID Frauds of the Week: PPP, PPE, and More

Posted  May 29, 2020

As the COVID-19 pandemic continues to batter businesses and everyday Americans, it has been one of the busiest weeks yet for the government agencies stopping fraudsters who target government relief programs.  In new cases filed this week, the government has gone after alleged bogus sales and price gouging of PPE, new frauds on the Paycheck Protection Program (PPP), healthcare fraud, and more.

Secret Service Busts Bogus Mask Seller

On Thursday, the U.S. Attorney’s Office for the Southern District of Georgia announced charges against Paul Penn, who allegedly sought to sell 50 million non-existent N-95 masks to a foreign government.  Acting through his company Spectrum Global Holdings, LLC, Penn allegedly sought a cut of the $317 million sales price for the masks, which was more than 500 percent higher than their pre-pandemic market value. The U.S. Secret Service intervened to stop the transaction just before it was completed, and the government subsequently charged Penn by way of criminal information filed in the U.S. District Court for the Southern District of Georgia.

“Using a worldwide pandemic as an opportunity to take advantage of those searching for badly needed personal protective equipment is reprehensible,” said U.S. Attorney for the Southern District of Georgia Bobby Christine. “Our office, together with our colleagues at the COVID-19 Hoarding and Price Gouging Task Force and our law enforcement partners, will aggressively seek out any fraudsters who exploit this crisis as a way to make a quick buck.”

DOJ Continues to Combat PPP Fraud

Across the country, several individuals were charged with fraud in connection with PPP loans, building on similar charges over the past several weeks.  Through the PPP, Congress has authorized over $600 billion in forgivable loans to small businesses for job retention and certain other expenses.  To qualify, small businesses and other organizations must use the PPP loan proceeds on payroll costs, interest on mortgages, rent, and utilities.  The interest and principal on the loans can be forgiven if the proceeds are used within eight weeks of receipt with at least 75 percent of the forgiven amount dedicated to payroll.

In California, DOJ charged Hollywood producer William Sadleir with wire fraud, bank fraud, false statements to a financial institution, and false statements to the SBA based on allegedly fraudulent loan applications seeking more than $1.7 million dollars in PPP loans.  DOJ accused Sadleir of using the PPP loan proceeds to pay off his personal credit card debt and for other personal expenses rather than protecting at-risk employees.  In a statement, Assistant Attorney General Brian A. Benczkowski of DOJ’s Criminal Division said, “As the department has made clear, those who defraud the PPP to line their own pockets at the expense of the American people will be brought to justice.”

In Washington, software engineer Baoke Zhang was charged with wire fraud and bank fraud for allegedly submitting false documents while seeking more than $1.5 million in PPP loans.  According to DOJ, Zhang submitted bogus payrolls and IRS withholding documentation associated with fictitious IT companies that he created, along with documents suggesting that the IRS issued an Employer Identification Number (EIN) to his sole proprietorship on April 3, 2017, when in fact the EIN was issued on April 3, 2020.

The government made clear that PPP abuse will remain a high priority.  “SBA OIG applauds due diligence by SBA’s lending partners to maintain the integrity of the lending programs,” said Special Agent in Charge Weston King of the SBA Office of Inspector General (SBA OIG) Western Region.  “Providing false statements to gain access to SBA’s programs will be aggressively investigated by our office in partnership with our law enforcement counterparts.”

Crackdown on Healthcare Fraud and Abuse

Our healthcare system is also vulnerable to COVID-related frauds and abuse.  In Arizona, the U.S. Attorney’s Office charged multiple individuals with health care fraud associated with the COVID-19 pandemic.  Jeremiah Faber was charged with one count of health care fraud and one count of money laundering for allegedly using social media to offer free COVID-19 testing if patients also completed his company’s Comprehensive Whole-Body Assessment. According to DOJ, Faber’s company then fraudulently billed the government for services that were medically unnecessary or in the names of physicians who had no role in the assessments.

The Arizona U.S. Attorney’s Office also charged six additional individuals with submitting false reimbursement claims for non-emergency medical transportation services that never occurred. According to the government, these false claims netted over $3 million in improper payments for five businesses.

In Florida, the Attorney General’s Office secured refunds for over 100 consumers who purchased purported “at-home” COVID-19 test kits from Sunshine Community Rx of Sarasota, d/b/a PrecisionMed Pharmacy.  In reality, the kits were not approved for at-home use, a fact the company omitted in its solicitations to consumers. In addition to the full refunds, PrecisionMed agreed to pay $5,000 in civil penalties and to cease offering the clinical test kits for at-home use.  PrecisionMed is also cooperating with the AG’s ongoing investigation into the selling of “at-home” test kits in Florida.

SDNY and State AGs Target Price Gouging

Prosecutors across the country also targeted alleged price gouging over the last week.  In coordination with several law enforcement partners, the U.S. Attorney’s Office for the Southern District of New York arrested Richard Schirripa, dubbed “the Mask Man,” alleging he gouged prices of vital N95 masks in violation of the Defense Production Act, made two false statements to law enforcement, and committed healthcare fraud and aggravated identity theft.  According to U.S. Attorney Geoffrey S. Berman, Schirripa spent over $200,000 on N95 masks and then charged customers up to 50% more than he had paid to acquire them.  Allegedly, Schirripa said he felt “like a drug dealer” during a sale to an undercover officer.  The investigation also uncovered unrelated allegations that over a five-year period, Schirripa caused Medicare and Medicaid to be billed for controlled substance prescriptions that he falsely represented were for patients of his pharmacy.

Separately, Berman’s Office also arrested Ronald Romano in connection with his alleged scheme to defraud and price-gouge New York City as it was being battered by the pandemic.  The government alleges that Romano attempted to sell New York City approximately $45 million in critical personal protective equipment (PPE) that he neither possessed nor was authorized to sell.  Romano also allegedly attempted to sell the PPE at exorbitant markups, which in some instances exceeded list prices by over 400%.

In North Carolina, Attorney General Josh Stein obtained a preliminary injunction against A1 Towing Solutions, Inc. and its owner David Jewel Satterfield, limiting the fees they can charge for towing and booting services and require them to release impounded vehicles after owners pay half the lien amount.  The injunction is in connection with a lawsuit filed by the Attorney General alleging that A1 Towing Solutions and Satterfield improperly and predatorily booted or towed trucks that were delivering food, water, bleach, or needed medical supplies during this pandemic.  The defendants then allegedly forced drivers to pay extortionate amounts before returning the vehicles, delaying critical supplies needed to respond to the pandemic.

Finally, in Pennsylvania, Attorney General Josh Shapiro announced a settlement with Quick Stop Mini Mart to stop price gouging at the Quick Stop Mini Mart in Allentown, Pennsylvania, which allegedly sold 500mL bottles of “Chinese Letter Hand Sanitizer” for $20 per bottle.

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Despite the government’s best efforts, COVID-related frauds continue to run rampant, threatening both the public fisc and health.  Even as the pandemic ebbs and some states start to reopen, novel frauds are certain to arise.  Whistleblowers can play a critical role in helping the government stay in front of these emerging schemes by exposing wrongdoing under whistleblower rewards laws.


Tagged in: Catch of the Week, COVID-19, Government Loan Programs, Importance of Whistleblowers, Whistleblower Eligibility,