TX Man Sentenced for PPP Fraud and Laundering

THURSDAY, DECEMBER 9, 2021


According to the U.S. Department of Justice, a Texas man was sentenced to over nine years in prison for his fraud and money laundering scheme of loans from the Small Business Administration’s Paycheck Protection Program.

The PPP was an integral part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was passed back in March 2020 in wake of the COVID-19 pandemic to help small businesses.

The case is reportedly one of more than 95 criminal cases that the Fraud Section has indicted since the inception of the CARES Act, including prosecuting over 150 defendants and seizing over $75 million in fraudulently obtained money, real estate properties and luxury items.

What Happened

Between May and July 2020, according to the court document, Lee Price III of Houston applied for multiple PPP loans to two different lenders, acting as a Chief Executive at 713 Construction LLC, Price Enterprises Holdings LLC and Price Logistic Services LLC. In total, Price requested over $2.6 million and received over $1.6 million in PPP loans.

The loan applications included fraudulent tax records and other materials. For the 713 Construction LLC loan, Price applied with a counterfeit Texas driver’s license in the name of an Ohio resident who died prior to the application being submitted.

Price claimed that 713 Construction had 30 employees and an average monthly payroll of $300,981 and that Price Enterprises had 50 employees and an average monthly payroll of $375,000. Both companies had no employees and no payroll.

On May 21, 2020, Price purchased a 2020 Ford F-350 with $85,000 of his first application loan. The next month, he bought a Rolex watch with a price tag of $14,343.13, a 2019 Lamborghini Urus with $233,337.60 and paid off a residential property loan.

Charges

According to the DOJ, Price plead guilty in September to two counts of wire fraud and three counts of engaging in monetary transactions in criminally derived property. The DOJ seized over $700,000 of PPP funds Price obtained, and he was ordered to forfeit the cars and watch.

“Mr. Price hopes that others will learn from his reckoning that there is no easy money,” Tom Berg, Price’s lawyer, told The Washington Post in an email. “He has the balance of the 110-month sentence to reflect, repent and rebuild his misspent life.”

The Federal Housing Finance Agency Office of Inspector General, the SBA Office of Inspector General and the U.S. Postal Inspection Service investigated the case.

Trial Attorney Andrew Tyler of the Criminal Division’s Fraud Section and Trial Attorneys James Alexander and Matthew Grisier of the Criminal Division’s Money Laundering and Asset Recovery Section are prosecuting the case with the assistance of Assistant U.S. Attorney James McAlister of the Southern District of Texas.

PPP Loan Background

Established by the CARES Act in 2020, the Paycheck Protection Program was among the first COVID-19 small business economic aid programs and provided more than $798 billion in economic relief to small businesses and nonprofits across the nation, keeping employees working and helping businesses come back stronger than ever.

After a year of issuing aid, in March of this year the Small Business Administration released new guidance regarding revisions made to the Paycheck Protection Program that intends to make access to the PPP loans more equitable.

The final rule arrived after President Joe Biden announced that his administration would be giving businesses with fewer than 20 employees and sole proprietors exclusive access to the portal from Feb. 24 through March 9.

According to the SBA, the final rule:

  • Allows for individuals who file an IRS Form 1040, Schedule C to calculate their maximum loan amount using gross income;
  • Removes the eligibility restriction that prevents businesses with owners who have non-financial fraud felony convictions in the last year from obtaining PPP loans; and
  • Removes the eligibility restriction that prevents businesses with owners who are delinquent or in default on their Federal student loans from obtaining PPP loans.

Through the establishment of the new rule, the Biden Administration envisions that lenders and community partners will have more time to work with the smallest businesses to submit their applications, while also ensuring that larger PPP-eligible businesses have time to apply for and receive support before the program expires at the end of the month.

Other changes to the program included:

  • Allowing sole proprietors, independent contractors and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these categories of applicants;
  • Eliminating an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bipartisan congressional proposal;
  • Eliminating PPP access restrictions on small business owners who have struggled to make student loan payments by eliminating student loan debt delinquency as a disqualifier to participating in the PPP; and
  • Ensuring access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP.

However, despite these changes, borrowers who have already been approved for additional PPP loans can’t increase their loan amounts using the new formula, although the SBA said that it would consider reviewing first-time PPP borrowers who calculated their loan amounts using gross income of more than $150,000.

Two months later, in May, the second round of the PPP program came to an end, a collection of news sources were reminding small business borrowers to apply for loan forgiveness, although PPP forgiveness is not a guarantee.

At the time, whether a business was applying for either the PPP Draw 1, PPP Draw 2 or both loans, the terms of the loan(s) were relatively the same, requiring that eligible borrowers who qualify for full loan forgiveness should have carried out the following over the eight- to 24-week period upon receiving the loan:

  • Maintained employee staffing and compensation levels (in PPP Draw 2, having maintained the compensation levels the same as in PPP Draw 1);
  • Spent the loan proceeds on payroll costs and other eligible expenses (40%); and
  • Used at least 60% of the loan for covering payroll costs.

However, should a business fall short of the guideline, partial forgiveness could be an option.

To simplify the process of applying, the American Institute of Certified Public Accountants has created a free online platform, PPPForgivenessTool.com. Once the form has been completed, the lender has 60 days to review the application and submit it to the SBA, which has 90 days to make a decision regarding forgiveness.

In July, the SBA announced that it was eliminating the Loan Necessity Questionnaire for PPP loans of $2 million or greater. The notice also declared that any questionnaires previously requested are no longer required and that any loans with an open request for additional information should be closed and resubmitted.

And the following month, the SBA announced a new initiative aimed at encouraging borrowers with Paycheck Protection Program loans of $150,000 or less to apply for loan forgiveness.

With borrowers within that loan bracket reported to make up more than 90% of all distributed loans during the pandemic-era program, the SBA has launched what it's calling a streamlined application portal for borrowers to apply for forgiveness directly through the SBA, instead of their participating lender.

The change in forgiveness application is slated to help rush relief to over 6.5 million of the smallest of small businesses. According to reports, the SBA issued nearly $800 billion in forgivable loans from April of last year through this May.

How it works is that through the SBA’s forgiveness site, borrowers will be able to submit applications directly into a format that officials estimate will take businesses just minutes to go through. While lenders will still have a say in whether individual PPP loans should be forgiven, the intent is to reduce the amount of time and effort that banks have been investing into the process.

However, the SBA has also reported its plans to spare certain borrowers who received second PPP loans this year worth less than $150,000 from having to supply documentation proving that they suffered a 25% revenue reduction in 2020 that was required to receive the aid.

Instead, the Administration plans to use a combination of data sets to make the determinations, including information based on foot traffic and credit card charging.

   

Tagged categories: COVID-19; Ethics; Fraud; Funding; Government; Laws and litigation; Lawsuits; NA; North America; Program/Project Management; Small Business Administration

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