Biggest fraud in a generation: The looting of the Covid relief plan known as PPP

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A news article headed Biggest fraud in a generation: The looting of the Covid relief plan known as PPP reports that many who took part in what prosecutors call the largest fraud in U.S. history bought luxury automobiles, mansions and private jet flights. It states that experts say as much as $80 billion, about 10 percent, of the $800 billion handed out through the Paycheck Protection Program may have been stolen. It adds that $90 billion to $400 billion is believed to have been stolen from the $900 billion Covid unemployment relief program, and another $80 billion potentially from a separate Covid disaster relief program.

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"Biggest fraud in a generation’: The
looting of the Covid relief plan known
as PPP

They bought Lamborghinis, Ferraris and Bentleys.

And Teslas, of course. Lots of Teslas.

Many who participated in what prosecutors are calling the largest fraud
in U.S. history — the theft of hundreds of billions of dollars in taxpayer
money intended to help those harmed by the coronavirus pandemic —
couldn’t resist purchasing luxury automobiles. Also mansions, private jet
flights and swanky vacations.

They came into their riches by participating in what experts say is the
theft of as much as $80 billion — or about 10 percent — of the $800
billion handed out in a Covid relief plan known as the Paycheck
Protection Program, or PPP. That’s on top of the $90 billion to $400
billion believed to have been stolen from the $900 billion Covid
unemployment relief program — at least half taken by international
fraudsters — as NBC News reported last year. And another $80 billion
potentially pilfered from a separate Covid disaster relief program.

The prevalence of Covid relief fraud has been known for some time, but
the enormous scope and its disturbing implications are only now

becoming clear.
Prosecutors
said Mustafa Qadiri, 38, of Irvine, Calif., used money from the
Paycheck Protection Program to buy three cars that cost six figures
apiece, including this 2011 Ferrari 458 Italia.U.S. Attorney's Office,
Los Angeles

Even if the highest estimates are inflated, the total fraud in all Covid
relief funds amounts to a mind-boggling sum of taxpayer money that
could rival the $579 billion in federal funds included in President Joe
Biden’s massive 10-year infrastructure spending plan, according to
prosecutors, government watchdogs and private experts who are trying
to plug the leaks.

“Nothing like this has ever happened before,” said Matthew Schneider, a
former U.S. attorney from Michigan who is now with Honigman LLP. “It
is the biggest fraud in a generation.”
Most of the losses are considered unrecoverable, but there is still a
chance to stanch the bleeding, because federal officials say $600 billion is
still waiting to go out the door. The Biden administration imposed new
verification rules last year that administration officials say appear to
have made a difference in curbing fraud. But they acknowledge that
programs in 2020 sacrificed security for speed, needlessly.

Justice Department Inspector General Michael Horowitz, who oversees
Covid relief spending, told "NBC Nightly News" anchor Lester Holt in an
exclusive interview that Covid relief programs were structured in ways
that made them ripe for plunder.

“The Small Business Administration, in sending that money out, basically
said to people, ‘Apply and sign and tell us that you're really entitled to
the money,’” said Horowitz, the chair of the Pandemic Response
Accountability Committee. “And, of course, for fraudsters, that's an
invitation. ... What didn't happen was even minimal checks to make sure

that the money was getting to the right people at the right time.”

The criminal methodology varied depending on the program. The epic
swindle of Covid unemployment relief has been carried out by individual
criminals or organized crime groups using stolen identities to claim
jobless benefits from state workforce agencies disbursing federal funds.

Each identity could be worth up to $30,000 in benefits, Horowitz said.

The looting of the Paycheck Protection Program worked differently — and
it could be far more lucrative. The program authorized banks and other
financial institutions to make government-backed loans to businesses,
loans that were to be forgiven if the companies spent the money on
business expenses. Nearly 10 million such loans have already been
forgiven. Many of the loans-turned-grants were for millions of dollars,
public records show.

Experts say millions of borrowers inflated their numbers of employees or
created companies out of whole cloth. For much of 2020, lenders did
little to verify the applications, prosecutors and experts say, in part
because Congress required the Small Business Administration, or SBA,
which ran the program, to issue explicit guidance that in the interest of
getting the money out fast, lenders “will be held harmless for borrowers’
failure to comply with program criteria.” The Government Accountability

Office warned of fraud risk, but the program continued under that rule.

“The government spent approximately $800 billion and provided 21
million loans to individuals,” said Haywood Talcove, the CEO for
government at LexisNexis Risk Solutions, which works with the
government to verify identities.

No one is sure exactly how much was stolen. An academic paper released
last year estimated at least $76 billion in potential fraud, and the authors
said that was conservative.

The SBA’s inspector general has identified $78.1 billion in potentially
fraudulent Economic Injury Disaster Loans, another Covid relief program
for businesses. The Secret Service has its own estimate: $100 billion.

The basic scheme, Talcove said, was “really simple.” People went on state
websites and took the names of existing businesses or registered new,
fake ones.

“There's absolutely no security on there. There's no validation of any
information,” Talcove said. “And voila, you have company ABC with 40
employees and a payroll of $10 million. And you go and apply for a PPP
loan. It was a piece of cake.”

To find more cases, the Pandemic Response Accountability Committee is
employing data scientists who use artificial intelligence to plow through
150 million records searching for fraud patterns. In one case it found that
a phone number for a gas station in Houston was used on 150 loan
applications. It sends such leads to federal agents who follow up on foot.

One of the centers of the fraud is Miami, where Juan Gonzalez is the U.S.
attorney in the Southern District of Florida.

Gonzalez said that unlike with unemployment relief, which went to every
person who qualified, lenders had to stop making PPP loans when the
money ran out, even though demand continued. The fraud didn’t harm
just the taxpayers — it hurt people who needed the money.
The public, he said, “should be very angry.”

“This is billions of taxpayer dollars that has been stripped from them,” he
said. “And more angry should be the people who did lose their jobs, who
worked for businesses that couldn't apply for this money because it was
gone. Those are really the ones who should be the angriest of all.”

Gonzalez said he has seen a lot of fraud in Florida, including billions
pilfered every year from the federal Medicare program. But never has so
much been stolen so quickly, he said.

“T have a hard time imagining when so much money has gone so quickly
into the hands of people who don't deserve it,” he added.

David Hines, 29, of Miami, for example, admitted to a fraud scheme that
netted him $3.9 million, according to his guilty plea. Hines, who said in
court papers that he struggled with addiction, bought a $318,000
Lamborghini Huracan. He also spent thousands on luxury hotels, jewelry,
clothing and dating sites, say prosecutors, who seized the car and
recovered much of the money.

Also in Miami, a man and a woman admitted to a complex scheme in
which, among other things, they claimed they were operating farms —
with many employees — out of small, single-family homes in the middle
of the city.

“Once you looked at the paperwork and once you saw what it was, all it
took was a drive to the farm to see there was no farm,” Gonzalez said.

In another Florida case, prosecutors have charged a man who they say
used proceeds from a $7.2 million emergency loan to buy a 12,579-
square-foot mansion, a Lincoln Navigator car, a Maserati and a
Mercedes-Benz.

A California couple were convicted in June of stealing $18 million, with
which they bought three houses, diamonds, gold coins, luxury watches,
expensive furniture and other valuables, prosecutors said. Just as they
were to be sentenced, they cut off their ankle bracelets and fled, leaving
their children behind, according to the FBI.

They were captured in February in Montenegro. The man was sentenced
to 17 years in prison, and his wife got six years.

Their case underscores that most of the defendants have been freed while
they have awaited trial and sentencing, even though they have been
accused of stealing huge sums.

Washington, D.C., resident Elias Eldabbagh, who appears to have no
criminal record, was charged last summer with trying to steal $17 million
from PPP and another program. According to his LinkedIn page, he
earned a degree in computer engineering from California State
University, Sacramento, and has worked in various technology jobs.
Among the property prosecutors seized was a Tesla Model 3.

He had been released on his own recognizance as he awaited trial, but he
was recently jailed after prosecutors accused him of a new crime —
attempting to defraud a bank — while his original case was pending.
Court records show he has pleaded not guilty. His lawyer declined to
comment.

In the annals of Covid fraud cases, few have matched the brazenness
suspected of Danielle Miller, according to federal prosecutors in Boston,
where she was charged. The charging documents in her case say she stole
identifying information from a Massachusetts state website and used the
information to apply for Covid relief loans.
Prosecutors say
Danielle Miller used stolen identities to get more than $100,000 in
Economic Injury Disaster Loans through the Small Business
Administration and alleged that she spent taxpayer money at luxury
hotels throughout California. Miller's lawyer declined to comment.@
killadmilla / via Instagram

In 40 minutes, she had $100,000 in taxpayer money, court documents
say. She soon booked a private jet from Florida to California, where she
spent $5,500 at a luxury hotel in West Hollywood, court papers allege.

On her Instagram account, which has 34,000 followers, Miller posted
photos from two posh hotel stays paid for with criminal proceeds,
prosecutors say. Her bio: “I want that.”

“Miller’s criminal record includes arrests in five different states, many of
which were related to larceny and identity-related fraud,” the complaint
in the case says.
Miller pleaded not guilty, but court records now say she intends to plead
guilty to an unspecified charge.

She participated in a recent profile in New York magazine that portrayed
her as a child of wealthy Manhattan parents whose life was derailed by

the circulation of a sexually explicit video when she was in the eighth
grade.

“Honestly, I more so consider myself a con artist than anything,” the
magazine quoted her as saying. “You know how they have that saying
that you can sell ice to an Eskimo? If there’s something that I want, I’m
getting it.”

Danielle Miller, accused
of identity theft in an indictment by the Justice Department in July,
posted this picture to her Instagram account eight months before she
was indicted.@ killadmilla / via Instagram
Hines got six years in prison, and the fraudulent farmers got 18 and 30
months. But Gonzalez and other government officials acknowledge that
for every person caught, many, many more have gotten away with it. And
while prosecutors have 10 years to go after the fraud, given the
enormous scope of the criminality, the Justice Department simply doesn’t
have the resources to go after it all.

“T think there's going to be a percentage that we probably will never
catch,” he said. “But we're working as hard as we can to catchas many as
we can.”

Across the country, only 178 people have been convicted so far in PPP
fraud cases, according to the Justice Department. Many more
prosecutions are coming, but even if the numbers reach 2,000 — or
20,000 — it will be only a small fraction of the fraud.

So how was this allowed to happen? There are two prevailing theories,
one more forgiving of the government than the other.

Many government officials, including Gonzalez, say that because the
government was trying to respond quickly during the pandemic, a
conscious decision was made to make the application process as smooth
as possible, even at the expense of thorough vetting.

“You have government releasing alot of money as quickly as possible
into the hands of people who really need it,” he said. “As usually
happens, the faster the money needs to go out, the less likely there are to
be the appropriate checks in place to make sure that people who don't
deserve that money don't get it.”

“What surprised me the most is just how blatant it was,” Gonzalez said.
“How individuals would just go ahead and lie on these applications — get
the money and then go ahead just openly spend it ... thinking that they're
going to do that without anybody checking up on it.”

He added: “Some fraud is inevitable. That’s the price that the government
was willing to pay to get the money as quickly as possible into the hands
of those that really needed it.”
As for the lenders, he said, “perhaps because it was not their money that
was on the line, some of these institutions didn't do the type of diligence
they should've done.”

The case of the California couple pursued by the SBA inspector general
appears to illustrate that fraudsters were leveraging the apparent
incuriosity of those doling out the cash.

The defendants, Richard Ayvazyan and Marietta Terabelian, got millions
of dollars by using stolen identifies to get around Ayvazyan’s
disqualifying 2011 conviction for bank fraud, court records say. They
texted about the cash that was available: "You need to apply. 10k
guaranteed...they don't check for s---...it's all automated."

Days later, they were texting that they had gotten the money. "I did 7
[applications] last night and 4 of them got email that it’s funded...I'm
telling you to apply [to] Bluevine," an online lender.

"how much they send u"
"Like over 500 so far."

Congressional officials say they are investigating a half-dozen lenders
and service providers, including Bluevine, which processed loan
applications for $4.5 billion and touted that a business could get loan
approval in five minutes.

Bluevine said in a statement that it used “robust compliance” to reduce
fraud in accordance with government guidelines and that it was
“regrettable” that the government’s loan programs were “abused by bad
actors ... despite our best efforts.”

Talcove, whose company maintains huge databases of public records and
sells verification services to governments, says the government and the
lenders and banks could and should have prevented such widespread
fraud.

When Covid relief was proposed, he said, he spoke to Larry Kudlow, then
a top economic adviser to President Donald Trump.

“And I explained to him that this was going to be the biggest fraud in the
history of our country. And then I was told that you can have speed or
you can have security. And that they'd rather just get the money out.”

Talcove said he told Kudlow that banks have the ability to rapidly
identify their customers.

Kudlow didn’t respond to requests for comment.

The idea that there is a tradeoff between speed and security “is a false
premise,” Talcove said. “It's not true. If you believed that, then some of
our biggest companies in this country that face consumers would be
bankrupt, right? It is very easy to stop the type of fraud that we're
looking at. In fact, the private sector stopped this a decade ago,

“The problem that happened is the states panicked, as well as the Small
Business Administration.”

In a statement, the SBA said it “takes fraud seriously, and, as such, all
applicants are required to provide certification of their eligibility upon
application.”

“Misrepresentation of eligibility is unlawful, and, when appropriate,
these cases are referred to the Office of the Inspector General,” it said.

But an official who works on Covid relief and wasn’t authorized to speak
publicly acknowledged that Talcove is correct. In the early stages of the
loan program, he said, there were few controls. And it didn’t have to be
that way.
“T agree,” he said, “that the notion that you had to sacrifice certainty for
speed is categorically false.”

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