COVID Frauds of the Week: PPP, Puppies, and Securities Fraud

As COVID-19 cases continue to rise across the country, the government has remained vigilant in rooting out fraudsters who seek to capitalize on the crisis to line their own pockets.  Over the past week, federal prosecutors have advanced cases against multiple individuals who fraudulently obtained government funds that were supposed to help struggling small businesses.  And in another colorful case, DOJ busted a “puppy scam” targeting U.S. consumers.  Meanwhile, the SEC joined the fray by obtaining final judgments in two COVID-related matters.

More Fraud on Government Loan Programs

As we’ve seen throughout the pandemic, government loan programs that provide life support to small businesses have been a prime target for fraudsters.  This week, DOJ stayed busy in prosecuting those frauds and protecting these vital government programs from abuse.

In Oklahoma, DOJ prosecutors secured a two-year prison sentence, followed by five years of supervised release, for Benjamin Hayford.  In August, Hayford pleaded guilty to bank fraud after he fraudulently sought millions of dollars in forgivable Paycheck Protection Program (PPP) loans by creating fake payroll documents and misrepresenting the date on which his business was established.  Only businesses in existence at the start of the pandemic are eligible for PPP loans, and loan proceeds must be used by businesses to cover payroll costs, mortgage interest, rent, or utilities.

In another case of PPP fraud, the U.S. Attorney’s Office for the Central District of California secured a guilty plea from Steven R. Goldstein.   According to a DOJ press release, Goldstein knowingly misrepresented the number of employees and the number of payroll expenses associated with a company called Beagle Real Estate Investments.  Through these misrepresentations, Goldstein illicitly obtained $655,000 in PPP loan proceeds.  Goldstein’s business partner, Raymond Magana, has also been charged in the scheme.

These enforcement actions are the latest in a long line of PPP fraud cases.  As we have seen, DOJ has heavily prioritized these cases to deter further abuse of PPP loans.  But given the size of the program—$669 billion—and the program’s heavy reliance on borrower self-certification, it’s likely that a huge number of frauds remain undetected.

DOJ Busts International “Puppy Scam”

Although PPP frauds have been at the forefront of government enforcement efforts during the pandemic, not all COVID frauds involve government funds.  Last Friday, DOJ busted an international “puppy scam” targeting Americans who, worn down by the pandemic, sought the soft comfort and companionship of a new pup.  In the unsealed criminal complaint, DOJ charged Desmond Fodje Bobga, a citizen of Cameroon who currently resides in Romania, with conspiracy to commit wire fraud, wire fraud, forging a seal of the U.S. Supreme Court, and aggravated identity theft.

According to DOJ, Fodje Bobga engaged in a “catfish” scheme whereby he and his co-conspirators falsely offered puppies and other animals for sale over the internet, including on lovelyhappypuppy.com.  And they didn’t stop with fake sales.  After inducing victims to purchase puppies that did not exist, Fodje Bobga and the co-conspirators solicited further fraudulent payments by claiming the pet’s transport was delayed or, more recently, that the pet had been exposed to the coronavirus.  Among the fake documents provided to consumers was a “refundable crate and vaccine guarantee document” purportedly issued by the “Supreme Court of the United States of America,” which bore the seal of the Court and the signature of a Clerk of the Court.  Fodje Bobga faces twenty years or more in prison in connection with the scheme.

SEC Stops COVID-Related Investment Frauds

Not to be outdone by its federal counterpart, the SEC obtained final judgments in two COVID-related cases this week.  First, in the Southern District of New York, the District Court entered a final judgment against Applied BioSciences Corp.  The SEC alleged that Applied BioSciences issued a fraudulent press release on March 31, 2020, claiming that it had begun offering finger-prick COVID-19 tests for use by the general public.  In reality, these tests were not intended for home use, had to be administered by a medical professional, and were not authorized by the FDA.  Without admitting or denying these allegations, Applied Biosciences agreed to settle the charges by paying a $25,000 civil penalty and consenting to the entry of the final judgment, which enjoined it from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

Separately, the U.S. District Court for the District of Massachusetts entered final judgments against FFS Capital Limited, Paifang Trading Limited, Artefactor Limited, Meadow Asia Limited, and Thyme International Limited, resolving the SEC’s claims that these entities orchestrated an illicit scheme through which corporate control persons could anonymously and illegally sell their company’s stock to unsuspecting investors.  The SEC alleged that these stock sales often coincided with bogus promotional campaigns that, among other things, included misleading information designed to capitalize on the COVID-19 pandemic.  To resolve these changes, the entities agreed to pay a total of $12,895,750 in civil penalties, disgorgement, and prejudgment interest.

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Despite the government’s best efforts, 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.

READ MORE:

• COVID-19 Fraud
• Government Programs Fraud
• Financial & Investment Fraud
• Our other posts on COVID Frauds of the Week
• False Claims Act
• SEC Whistleblower Program
• The Constantine Cannon Team

Tagged in: COVID-19, Criminal Proceedings, Financial and Investment Fraud, Government Procurement Fraud, Government Programs Fraud, Misrepresentations, Securities Fraud,