DOJ Files First Charges for Abuse of the PPP
Shortly after Congress established the Paycheck Protection Program (PPP) as part of its enactment of the CARES Act, the U.S. Department of Justice (DOJ) announced that all U.S. Attorneys have been “directed to prioritize the investigation and prosecution of Coronavirus-related fraud schemes.” It didn’t take long for DOJ to act on those orders. Although the PPP is barely one month old, DOJ already has begun to prosecute abuses of the government program.
On May 5, 2020, the Justice Department announced the filing of criminal charges against two New England businessmen who allegedly filed fraudulent loan applications seeking more than $543,959 in forgivable PPP stimulus loans. The defendants, David A. Staveley (a.k.a. Kurt David Sanborn) and David Butziger, are the first in the country to be criminally charged in connection with a scheme to defraud the PPP. Staveley and Butziger are alleged to have submitted fraudulent PPP loan applications, claiming to “have dozens of employees earning wages at four different business entities when, in fact, there were no employees working for any of the businesses,” according to DOJ. By way of example, one of the businesses (a Massachusetts restaurant) was closed after its liquor license was revoked, well before the stay-at-home orders came into effect; another of the businesses closed in 2018.
Both Staveley and Butziger are charged, in the U.S. District Court for the District of Rhode Island, with conspiracy to commit bank fraud and conspiracy to make false statements to influence the SBA. Additionally, Butziger is charged with bank fraud and Staveley is charged with aggravated identity theft, based upon his alleged use of his brother’s identity in connection with, among other things, applying for the PPP loans. The FBI affidavit describes the charges in further detail.
Although this appears to have been a flagrant attempt to defraud a government program, the swift investigation and prosecution of Staveley and Butziger speaks volumes. The Justice Department is sending a clear message: it will aggressively investigate and prosecute crimes relating to the CARES Act. Further, according to a recent interview with Assistant Attorney General Brian Benczkowski, head of the DOJ Criminal Division, there are multiple ongoing investigations of individuals and small businesses, and the Department has “a lot of leads.”
Realistically speaking, criminal investigations and prosecutions will grab headlines, but they will be rare; they will be reserved for clearly egregious and fraudulent conduct. Government audits and inquiries, on the other hand, may be numerous. Beyond criminal prosecution, there is significant potential for civil liability under the False Claims Act for individuals or business who submit SBA loan applications with certifications they knew or should have known were false.
Please reach out to our business attorneys if you need assistance determining whether your business qualifies for a PPP loan or whether it is a good option for your business. And if you have concerns about criminal or civil liability arising from your PPP loan application, please contact our white collar crime and investigations attorneys. Further information on the PPP can be found on Eastman & Smith’s web site.
At the date of publication the above information was correct. It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.
The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.