Information — United States of America v. Arlen Encarnacion

Summary

An Information in United States v. Arlen Encarnacion in the U.S. District Court for the District of New Jersey, filed after he waived prosecution by indictment and citing 18 U.S.C. § 1349, 18 U.S.C. § 1957 and 18 U.S.C. § 2. Count One, conspiracy to commit wire fraud, describes Encarnacion as owner or member/manager of approximately 12 purported entities that submitted approximately 19 fraudulent loan applications for federal COVID-19 emergency relief funds. It alleges that the applications caused the SBA or four FDIC-insured victim banks to disburse approximately $2,175,717.83 in PPP and/or EIDL funds, itemized in a chart. It also alleges a transfer of approximately $50,000 to a co-conspirator on or about September 28, 2020, and Count Two charges transacting in criminal proceeds.

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2021R00643/MCO

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

UNITED STATES OF AMERICA : Hon.
:
v. : Crim. No. 23-
:
ARLEN ENCARNACION : 18 U.S.C. § 1349
: 18 U.S.C. § 1957
: 18 U.S.C. § 2

INFORMATION

The defendant having waived in open court prosecution by Indictment, the

United States Attorney for the District of New Jersey charges:

COUNT ONE
(Conspiracy to Commit Wire Fraud)

Background

Individuals and Entities

1. At all times relevant to this Information:

a. Defendant ARLEN ENCARNACION (“ENCARNACION”)

resided in New Jersey and was the owner or “member/manager” of approximately 12

purported entities (the “Fraud Entities”) that submitted approximately 19 fraudulent

loan applications for federal COVID-19 emergency relief funds.

b. CC-1 and CC-2 were co-conspirators not charged in this

Information who agreed with ENCARNACION to submit fraudulent loan

applications for federal COVID-19 emergency relief funds.

c. Bank 1 was headquartered in Boston, Massachusetts, Bank 2 was

headquartered in San Francisco, California, Bank 3 was headquartered in Cherry

Hill, New Jersey, and Bank 4 was headquartered in New York, New York
(collectively, the “Victim Banks”). The Victim Banks were financial institutions

insured by the Federal Deposit Insurance Corporation (“FDIC”).

Paycheck Protection Program

d. The Coronavirus Aid, Relief, and Economic Security (“CARES”)

Act was a federal law enacted in or about March 2020 and designed to provide

emergency financial assistance to the millions of Americans who were 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 for job retention and certain other expenses, through a program referred

to as the Paycheck Protection Program (“PPP”). In or about April 2020, Congress

authorized over $300 billion in additional PPP funding. The PPP ended on May 31,

2021.

e. To obtain a PPP loan, a qualifying business was required to

submit a PPP loan application, 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 loan application,

the small business was required to state, among other things, its: (a) average monthly

payroll expenses; and (b) number of employees. These figures were used to calculate

the amount of money 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.

2
f. A PPP loan application had to be processed by a participating

lender. If the PPP loan application was approved, the participating lender funded

the PPP loan using its own money, which was 100% guaranteed by the U.S. Small

Business Administration (“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 while processing the loan.

g. PPP loan proceeds could only 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 forgiven if the business

spent the loan proceeds on these eligible expense items within a designated period of

time after receiving the proceeds and used a certain amount of the PPP loan proceeds

on payroll expenses.

h. PPP loan applications had to be electronically submitted or

caused to be submitted by the borrower, and after on or about January 11, 2021, all

PPP applications were received and processed through SBA servers located in

Oregon.

Economic Injury Disaster Loan Program

i. The Economic Injury Disaster Loan (“EIDL”) program was an

SBA program that provided low-interest financing to small businesses, renters, and

homeowners in regions affected by declared disasters.

j. The CARES Act authorized the SBA to provide EIDLs of up to $2

million to eligible small businesses experiencing substantial financial disruption due

to the COVID-19 pandemic.

3
k. In order to obtain an EIDL, a qualifying business had to submit

an application to the SBA and provide information about its operations, such as the

number of employees, gross revenues, and cost of goods sold in the 12-month period

preceding the disaster. The amount of the EIDL was determined based, in part, on

the information the applicant provided regarding the revenue, employees, and cost of

goods of the company. SBA directly issued any funds disbursed under an EIDL to

the applicant company. A company could use EIDL funds for payroll expenses, sick

leave, production costs, and business obligations, such as debts, rent, and mortgage

payments. If an applicant also obtained a loan under the PPP, the applicant company

was prohibited from using EIDL funds for the same purpose as the PPP funds.

The Wire Fraud Conspiracy

2. From in or around May 2020 through in or around April 2021, in the

District of New Jersey and elsewhere, defendant,

ARLEN ENCARNACION,

did knowingly and intentionally conspire to devise a scheme and artifice to defraud

lenders of federal COVID-19 emergency relief funds, specifically the SBA and the

Victim Banks, and to obtain money and property from them by means of one or more

materially false and fraudulent pretenses, representations, and promises, and for the

purpose of executing such scheme and artifice, to transmit and cause to be

transmitted by means of wire communication in interstate and foreign commerce

writings, signs, signals, pictures, and sounds, contrary to Title 18, United States

Code, Section 1343.

4
Goal of the Conspiracy

3. The goal of the conspiracy was for ENCARNACION, CC-1, and CC-2 to

profit by submitting fraudulent loan applications to obtain PPP and EIDL funds from

the SBA and the Victim Banks, which they diverted for their personal use and other

business ventures.

Manner and Means of the Conspiracy

4. It was part of the conspiracy that:

a. ENCARNACION conspired with CC-1 and CC-2 to obtain PPP

and EIDL loans by submitting false and fraudulent applications on behalf of the

Fraud Entities.

b. In those applications, ENCARNACION and his coconspirators

claimed that each of the Fraud Entities was a real company even though none of them

conducted any actual business.

c. Each application included fictitious payroll and tax documents

and misrepresented, among other things, the number of employees and payroll

expenses for each purported company.

d. To collect money from the scheme, CC-1 and CC-2 opened bank

accounts in the names of some of the Fraud Entities.

e. In total, ENCARNACION, using the Fraud Entities and aided by

CC-1 and CC- 2, caused the SBA or one of the Victim Banks to disburse approximately

$2,175,717.83 in PPP and/or EIDL funds, as set forth in the following chart:

5
Approx. Date of Type of Bank/ Approx. Amount Approx. Date
Application Loan SBA Disbursed Disbursed
May 20, 2020 PPP Bank 1 $26,415 July 1, 2020
July 30, 2020 PPP Bank 1 $105,009 August 7, 2020
August 8, 2020 EIDL SBA $63,600 August 31, 2020
August 21, 2020 EIDL SBA $149,900 September 1, 2020
August 22, 2020 EIDL SBA $149,900 September 2, 2020
January 15, 2021 PPP Bank 1 $143,450 March 1, 2021
January 15, 2021 PPP Bank 1 $121,312 February 2, 2021
January 16, 2021 PPP Bank 1 $130,330 February 3, 2021
January 16, 2021 PPP Bank 1 $105,010 January 25, 2021
January 18, 2021 PPP Bank 1 $101,235 February 9, 2021
January 18, 2021 PPP Bank 1 $148,350 January 26, 2021
January 20, 2021 PPP Bank 3 $116,670 February 25, 2021
April 8, 2021 PPP Bank 2 $153,030 April 22, 2021
April 13, 2021 PPP Bank 2 $169,372 May 10, 2021
July 25, 2020 PPP Bank 4 $46,500 July 28, 2020
January 20, 2021 PPP Bank 4 $119,912 February 5, 2021
March 16, 2021 PPP Bank 1 $169,280 March 29, 2021
March 18, 2021 PPP Bank 1 $156,442 March 29, 2021

f. All of the PPP loan applications listed above were transmitted via

interstate wire from New Jersey to servers located in Oregon.

g. On or about September 28, 2020, ENCARNACION transferred

approximately $50,000 in fraudulently obtained PPP funds to CC-2’s personal bank

account at Bank 4, and CC-2 improperly used those funds to purchase real estate.

In violation of Title 18, United States Code, Section 1349.

6
COUNT TWO
(Transacting in Criminal Proceeds)

1. The allegations set forth in paragraphs 1, 3, and 4 of Count One of this

Information are realleged here.

2. On or about September 28, 2020, in the District of New Jersey and

elsewhere, defendant,

ARLEN ENCARNACION,

knowingly engaged in a monetary transaction by, through, and to a financial

institution, affecting interstate and foreign commerce, in criminally derived property

of a greater value than $10,000, that is the transfer of approximately $50,000 to CC-

2’s personal bank account at Bank 4, such property having been derived from a

specified unlawful activity, that is wire fraud.

In violation of Title 18, United States Code, Section 1957 and Section 2.

7
FORFEITURE ALLEGATION AS TO COUNT ONE

1. As a result of committing the offense charged in Count One of this

Information, defendant, ARLEN ENCARNACION, shall forfeit to the United

States, pursuant to Title 18, United States Code, Section 981(a)(1)(C) and Title 28,

United States Code, Section 2461(c), any property, real or personal, constituting or

derived from proceeds traceable to the offense alleged in Count One of this

Information, the value of which totaled $1,683,883.83.

FORFEITURE ALLEGATION AS TO COUNT TWO

2. As a result of committing the money laundering offense charged in

Count Two of this Information, defendant, ARLEN ENCARNACION, shall forfeit

to the United States, pursuant to Title 18, United States Code, Section 982(a)(1), all

property, real or personal, involved in such money laundering offense, and all

property traceable to such property.

SUBSTITUTE ASSETS PROVISION
(Applicable to All Forfeiture Allegations)

3. If any of the property described above, as a result of any act or omission

of the defendant:

a. cannot be located upon the exercise of due diligence;

b. has been transferred or sold to, or deposited with, a third party;

c. has been placed beyond the jurisdiction of the court;

d. has been substantially diminished in value; or

e. has been commingled with other property which cannot be divided

without difficulty,

8
it is the intent of the United States, pursuant to Title 21, United States Code, Section

853(p), as incorporated by Title 18, United States Code, Section 982(a)(1) and Title

28, United States Code, Section 2461(c), to seek forfeiture of any other property of

such defendant up to the value of the forfeitable property described above.

______________________
PHILIP R. SELLINGER
United States Attorney

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