CARES Act fraud likely spurred spike in criminal case referrals

The U.S. Small Business Administration has referred more criminal cases — including two from Nevada — to federal prosecutors in 2020 than in any year during the last two decades, due in large part to growing COVID-19 stimulus aid fraud, a report shows.

Since the $2 trillion CARES Act was enacted last March, the U.S. Small Business Administration has been tasked with disbursing the popular Paycheck Protection Program funds to help struggling small businesses weather the pandemic, according to a new report by Syracuse University.

Austin Kocher, a professor at Syracuse University’s Transactional Records Access Clearinghouse and author of the report published Wednesday, said that fraud within the $659 billion small business aid program isn’t surprising.

“We’re looking at the data and we just saw a jump in referrals from the SBA to the U.S. Attorney’s offices, and once we looked into it, it made sense because there’s been all these issues with the PPP,” Kocher told the Las Vegas Review-Journal in an interview. “The government’s own data shows that there’s just a lot more prosecutions coming out of the CARES Act and the PPP.”

The U.S. Attorney’s office in Nevada is already prosecuting several PPP cases: Last August, a Henderson man was charged with fraudulently obtaining $500,000 in PPP funds to purchase a house through elaborate means.

Last week, the Review-Journal first reported that federal prosecutors unsealed a criminal complaint against a Nevada man who obtained $2 million in PPP money to purchase luxury cars and swanky condos.

Last year, the SBA referred 91 criminal cases to the Department of Justice, according to Kocher, who obtained the data through a public records request. By comparison, in 2019, the SBA only referred 11 cases for criminal prosecution.

Kocher said his analysis found that criminal referrals from the SBA are often low, an average of just 46 cases per year since 2001.

It is unclear if all the SBA’s recent referrals for criminal prosecution are related to the CARES Act, but Kocher said that “the timing of this upsurge in referrals as well as details on cases already being filed suggest that alleged fraud in applications for COVID relief was a major driving force.”

Many ailing businesses across the U.S. saw the forgivable loan program as a lifeline, using funds to keep employees on payroll and for rent and utilities. Banking leaders in Nevada have previously said that all businesses that received a PPP loan should retain all required paperwork because the loans are subject to an SBA audit, including after forgiveness.

In January, the SBA began accepting a “second draw” for PPP funds. As of Tuesday, the SBA said that it has already approved 400,000 PPP loans worth $35 billion this year, out of the $284 billion of total available funding.

Of the PPP applications approved, 2,800 loans worth $287.4 million were from Nevada.

Kocher said he expects the SBA to refer more criminal cases to federal prosecutors. U.S. Attorney Nicholas Trutanich, Nevada’s top prosecutor, told the Review-Journal last December that his office received funding from the Department of Justice to add an assistant U.S. attorney whose focus will be prosecuting CARES Act-related fraud cases.

“Because we’re looking at referrals, we don’t really know how many of these prosecutions are going to go forward, or how many referrals are still out there,” Kocher said. “But, I anticipate that we would see the number of criminal prosecutions remain steady or continue to climb into 2021.”

Contact Jonathan Ng at jng@reviewjournal.com. Follow @ByJonathanNg on Twitter.