Criminal Complaint — No. 21-13103 (D.N.J.)
Summary
A criminal complaint in United States v. John Jhong, Mag. No. 21-13103, in the U.S. District Court for the District of New Jersey, sworn by IRS Special Agent Vincent Flynn before Magistrate Judge Leda Dunn Wettre. Attachment A charges three counts for conduct between April 2020 and October 2020: bank fraud under Title 18, United States Code, Section 1344(2) against Lender A, Lender B, Lender C and Lender D; false representation of a social security number under Title 42, United States Code, Section 408(a)(7)(B); and money laundering under Section 1956(a)(1)(B)(i). Attachment B alleges that Jhong sought approximately $1.9 million in Paycheck Protection Program funds for the Jhong Entities, tables ten loans from May 5, 2020 onward ranging from $20,833.00 to $634,573.00, and says approximately $330,000 of a $346,312.00 disbursement became a cashier's check.
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UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNITED STATES OF AMERICA :
: CRIMINAL COMPLAINT
v. :
: Mag. No. 21-13103
JOHN JHONG :
:
I, Vincent Flynn, being duly sworn, state the following is true and correct
to the best of my knowledge and belief.
SEE ATTACHMENT A
I further state that I am a Special Agent with the Internal Revenue Service
and that this Complaint is based on the following facts:
SEE ATTACHMENT B
continued on the attached page and made a part hereof.
________________________________________
Vincent Flynn, Special Agent
Internal Revenue Service
Attested to by the affiant in accordance with the requirements of Fed. R. Crim.
P. 4.1(b)(2)(A) by telephone.
Leda Dunn Wettre /s/
_________________________________
Honorable Leda Dunn Wettre
United States Magistrate Judge
ATTACHMENT A
COUNT ONE
(Bank Fraud)
Between in or around April 2020 and in or around October 2020, in the
District of New Jersey and elsewhere, the defendant,
JOHN JHONG,
did knowingly and intentionally execute and attempt to execute a scheme and
artifice to defraud one or more financial institutions, namely: Lender A, Lender
B, Lender C, and Lender D, the deposits of which were insured by the Federal
Deposit Insurance Corporation, and to obtain money, funds, credits, assets,
securities, and other property owned by and under the custody and control of
such financial institutions by means of materially false and fraudulent
pretenses, representations, and promises.
In violation of Title 18, United States Code, Section 1344(2).
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COUNT TWO
(False Representation of Social Security Number)
Between in or around April 2020 and in or around October 2020, in the
District of New Jersey and elsewhere, the defendant,
JOHN JHONG,
with intent to deceive, did cause the payment of federal funds by falsely
representing that a social security number was assigned to oneself or another
person when in fact such number was not the social security account number
assigned to him or to such other person.
In violation of Title 42, United States Code, Section 408(a)(7)(B).
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COUNT THREE
(Money Laundering-Conceal and Disguise)
Between in or around April 2020 and in or around October 2020, in the
District of New Jersey and elsewhere, the defendant,
JOHN JHONG,
conducted and attempted to conduct a financial transaction with the proceeds
of a specified unlawful activity, namely proceeds from Bank Fraud, in violation
of 18 U.S.C. § 1344(2), knowing that the transaction involved the proceeds of
unlawful activity and was designed in whole or in part to conceal and disguise
the nature, location, source, ownership, and the control of the proceeds of the
specified unlawful activity.
In violation of Title18, United States Code, Section 1956(a)(1)(B)(i).
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ATTACHMENT B
I, Vincent Flynn, am a Special Agent with the Internal Revenue Service
(“IRS*”). I have participated in this investigation, discussed this matter with other
law enforcement officers, and have reviewed documents and other materials. I
have knowledge of the following facts. Because this Criminal Complaint is being
submitted only for the limited purpose of establishing probable cause, I have not
included each and every fact known to me concerning this investigation. I have
set forth only the facts which I believe are necessary to establish probable cause.
Unless specifically indicated, all conversations and statements described in this
affidavit are related in substance and in part and all dates and figures are
approximate.
OVERVIEW
1. Between in or around April 2020 and in or around October 2020,
John Jhong (hereinafter “Jhong” or the “defendant”), on behalf his purported
businesses, executed a scheme to illegally obtain approximately $1.9 million
dollars in federal Paycheck Protection Program funds by fabricating the
purported entities’ income, tax documents, and/or certifying other false
representations on numerous Paycheck Protection Program applications
(collectively “PPP Loan Applications”).
BACKGROUND
The Paycheck Protection Program
2. The Coronavirus Aid, Relief, and Economic Security (hereinafter
“CARES”) Act was a federal law enacted in or around March 2020 and designed
to provide emergency financial assistance to millions of Americans suffering the
economic effects caused by the COVID-19 pandemic. One source of relief
provided by the CARES Act was the authorization of up to $349 billion in
forgivable loans to small businesses in operation before February 15, 2020, for
job retention and certain other expenses, through a program referred to as the
Paycheck Protection Program (hereinafter “PPP”). In or around April 2020,
Congress authorized over $300 billion in additional PPP funding.
3. To obtain a PPP loan, a qualifying business was required to submit a
PPP loan application, which is signed by an authorized representative of the
business. The PPP loan application required the business (through its authorized
representative) to acknowledge the program rules and make certain affirmative
certifications in order to be eligible to obtain the PPP loan. In the PPP loan
application, the small business (through its authorized representative) was also
required to state, among other things, its average monthly payroll expenses and
number of employees. These figures were used to calculate the amount of money
that the small business was eligible to receive under the PPP. In addition,
businesses applying for a PPP loan had to provide documentation showing their
payroll expenses.
4. Thereafter, the PPP loan application would be processed and if
approved, funded by a participating lender, which funded the PPP loan using its
own monies that are 100% guaranteed by the Small Business Administration
(hereinafter “SBA”). Data from the application, including information about the
borrower, the total amount of the loan, and the listed number of employees, was
transmitted by the lender to the SBA in the course of processing the loan. PPP
loan proceeds had to be used by the business on certain permissible expenses—
payroll costs, interest on mortgages, rent, and utilities. The PPP allowed the
interest and principal on the PPP loan to be entirely forgiven if the business spent
the loan proceeds on these expense items, and provided proof, within a
designated period after receiving the proceeds.
5. In the PPP Loan Applications at issue, the defendant certified that the
information he provided to four lending financial institutions, including all the
supporting documents and forms, were true and accurate in all material
respects.
Relevant Individuals, Entities and Financial Institutions
During the period relevant to this Complaint:
6. Jhong was a resident of Sparta, Jersey.
7. Jhong was the self-reported owner, manager, and/or partner of the
following limited liability companies (hereinafter “LLC”): Central Fur Storage LLC;
MC Services LLC; Central Apparel LLC; Rose Lane Associates LLC; Speedez
Cleaners of the Summit LLC; Rose Lane Funding VII LLC; Blockbuster Products
LLC; Central Staffing LLC, a/k/a “Central Staffing Services”; Speedez Cleaners
LLC; and Central Express LLC (collectively the “Jhong Entities”)
8. Lender A was a financial institution as defined under Title 18, United
States Code, Section 20(1) whose deposits were insured by the Federal Deposit
Insurance Corporation (hereinafter “FDIC”). Lender A was headquartered in
Charlotte, North Carolina.
9. Lender B was a financial institution as defined under Title 18, United
States Code, Section 20(6) and was a depository institution holding company.
Lender B was headquartered in Lake Forest, California.
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10. Lender C was a financial institution as defined under Title 18, United
States Code, Section 20(5) and served as a nonbank small business investment
lender. Lender C was headquartered in Lake Mary, Florida.
11. Lender D was financial institution under Title 18, United States Code,
Section 20(1) whose deposits were insured by the FDIC. Lender D was
headquartered in Boston, Massachusetts.
12. Lender A, Lender B, Lender C and Lender D (collectively, the
“Lenders”) all were participating PPP lending financial institutions.
13. Financial Institution 1 was a financial institution under Title 18,
United States Code, Section 20(1), whose deposits were insured by the FDIC.
Financial Institution 1 was headquartered in Buffalo, New York and provided
banking services to customers in New Jersey and throughout the United States.
Jhong maintained a business checking account for one of the Jhong Entities at
Financial Institution 1.
SCHEME TO DEFRAUD
14. Between April 2020 through October 2020, Jhong submitted ten PPP
Loan Applications to the Lenders, in order to fraudulently obtain funds through
the PPP.
15. Based on the false information Jhong provided in the PPP Loan
Applications, the Lenders funded ten loans to the Jhong Entities as follows:
Loan# Entity Date Funding Financial Loan Amount
Disbursed Institution
1. Central Fur May 5, 2020 Lender A $20,833.00
Storage LLC
2. MC Services May 5, 2020 Lender A $81,436.00
LLC
3 Central May 5, 2020 Lender A $20,835.00
Apparel LLC
4 Rose Lane May 5, 2020 Lender A $20,833.00
Associates LLC
5. Speedez May 15, 2020 Lender A $96,197.00
Cleaners of
Summit LLC
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6. Rose Lane May 28, 2020 Lender B $346,312.00
Funding VII
LLC
7. Blockbuster July 10, 2020 Lender C $100,000.00
Products LLC
8. Central July 16, 2020 Lender D $634,573.00
Staffing LLC
9. Speedez July 30, 2020 Lender D $552,176.00
Cleaners LLC
10. Central October 9, Lender D $104,295.00
Express LLC 2020
16. On each of the PPP Loan Applications, Jhong listed his home address
in Sparta, New Jersey as his place of residence.
Jhong’s False Representations to Lenders
17. The IRS treats as a sole proprietorship any LLC with only one owner
and requires the owner to file a yearly IRS Form 1040 (an individual tax return)
with a Schedule C (showing the business’s revenue). An LLC that has more than
one owner/partner is treated as a partnership and is required to file a yearly IRS
Form 1065 (partnership tax return) with accompanying Schedule K-1s (showing
each partner’s earnings, losses, deductions, and credits). The Lenders relied on
such tax information, as part of the PPP loan application, when determining the
appropriate PPP loan amount.
18. On behalf of each of the Jhong Entities, Jhong provided the Lenders
with either a purported 2019 IRS Form 1040 Schedule C and/or a purported
2019 IRS Form 1065 with Schedule K-1s (listing multiple business partners) in
connection with each of the PPP Loan Applications.
19. According to IRS records, none of the tax documents Jhong
submitted with the PPP Loan applications were ever filed with the IRS.
Specifically, IRS records revealed that in 2018 and 2019, none of the Jhong
Entities filed an IRS Form 1065 tax return or Schedule K-1. Similarly, in 2019,
Jhong failed to file an IRS Form 1040 tax return or Schedule C.
20. Not only were these tax forms never filed with the IRS, there is
probable cause to believe the information within the forms that Jhong submitted
to the Lenders was falsified. Specifically, in the application for PPP Loan Nos. 1-
6, despite listing himself as the 100% owner for each entity, Jhong submitted to
Lenders A and B both an IRS Form 1040 with Schedule C and an IRS Form 1065
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with Schedule K-1s. Notwithstanding whether Jhong should have submitted an
IRS Form 1040 (sole proprietorship tax return) or an IRS Form 1065 (partnership
tax return), the amounts related to the Jhong Entities’ 2019 gross receipts, total
deductions and income loss should have been the same for the same tax year.
However, in comparing each of the Jhong Entities’ respective 2019 IRS Form
1040 and Schedule C purported filings to that of the same entity’s 2019 IRS
Form 1065 purported filings, the figures related to the respective Jhong Entity’s
gross receipts, total deductions and income loss were grossly incongruent for the
same tax year.
21. For example, in PPP Loan Application No. 6, Jhong submitted an IRS
Form 1065 which stated that in 2019 Rose Lane Funding VII LLC had gross
receipts of $1,866,300.00, total deductions of $1,862,230.00, and income of
$4,070.00. Jhong also submitted an IRS 1040 Form Schedule C in support of
PPP Loan Application No. 6, which stated that in 2019 Rose Lane Funding VII
LLC had gross receipts of $491,050.00, total deductions of $487,271.00, and
income loss of $3,779.00. Similar discrepancies were found in PPP Loan
Applications Nos. 1-5.
22. In support of PPP Loan Applications Nos. 6-10, Jhong also submitted
numerous Schedule K-1s to Lender B, Lender C, and Lender D. The investigation
has revealed that the social security numbers listed on the Schedule K-1s that
purportedly belonged to Jhong’s “business partners” were actually assigned to
people other than the “partners” listed on the Schedule K-1s, including several
individuals who have been deceased for over a decade.
23. In PPP Loan Applications Nos. 3 and 6-10, Jhong submitted Schedule
K-1s to the Lenders that bore taxpayer identification numbers that were assigned
to entities other than the entities listed on the Schedule K-1s.
24. In PPP Loan Application No. 6, Jhong submitted to Lender B a 2019
IRS Form 1065 reflecting that Rose Lane Funding VII LLC earned $1,866,300.
However, bank records revealed that in 2019, Rose Lane Funding VII LLC had
less than $410,000 in total deposits in its bank accounts.
25. Pursuant to the CARES Act, a business established after February
15, 2020, is not eligible to receive PPP loan funds. In accordance with this
requirement, Jhong certified in each of the PPP Loan Applications at issue that
the Jhong Entity was in operation on or before February 15, 2020; however, the
investigation has revealed that this was not true regarding PPP Loan Application
No. 10.
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26. In PPP Loan Application No. 10, in support of his certification that
Central Express LLC was in operation on or before February 15, 2020, Jhong,
provided Lender D with the purported Articles of Incorporation for Central
Express LLC reflecting that the entity was established in Wyoming on or about
February 21, 2018 (the “Articles”).
27. Wyoming state records revealed, however, that the Articles Jhong
submitted were falsified. The Articles that Jhong submitted listed an
identification number ending in 0313. According to Wyoming state records, this
identification number was assigned to Central Fur Storage LLC, not Central
Express LLC. Furthermore, while Central Fur Storage LLC was established on or
about February 21, 2018, Wyoming state records further revealed that Central
Express LLC, which has an identification number ending in 6735, was not
established until July 1, 2020.
Jhong Concealed Illegally Obtained PPP Funds
28. On or about May 28, 2020, Lender B disbursed approximately
$346,312.00 in PPP funds into the Rose Lane VII LLC bank account based on
Jhong’s false representations in PPP Loan Application No. 6. Thereafter, on or
about July 1, 2020, Jhong converted approximately $330,000 of those funds into
a cashier’s check (hereinafter the “cashier’s check”).
29. On or about September 30, 2020, Jhong used the cashier’s check to
open a business account at Financial Institution 1. Jhong provided Financial
Institution 1 with a falsified document reflecting that the cashier’s check derived
from a trust account that was funded by the sale of one of the Jhong Entities in
an effort to conceal the source of the cashier’s check. However, the cashier’s
check actually was funded by the proceeds of Rose Lane Funding VII’s false PPP
Loan Application No. 6. Moreover, the investigation revealed that the trust
account that Jhong claimed was the source of the cashier’s check did not exist.
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