WASHINGTON – Two New England businessmen have been charged with illegally trying to procure hundreds of thousands of dollars in federal Paycheck Protection Program loans, the first fraud case in the nation involving the massive effort to rescue small businesses from the coronavirus crisis.
And the chief of the U.S. Justice Department’s Criminal Division said he expects more cases in the future. Tuesday’s case, filed in Rhode Island, is the first of several investigations launched by federal authorities since the start of the massive program, he said.
“What we see coming out of Rhode Island is what’s happening across the country,” Assistant Attorney General Brian A. Benczkowski, told USA TODAY. “We have a lot of leads.”
On Tuesday, prosecutors charged David A. Staveley, 52, of Andover, Massachusetts, and David Butziger, 51, of Warwick, Rhode Island, with conspiring to seek forgivable loans guaranteed by the Small Business Administration. The loans amounted to nearly $544,000, according to the U.S. Department of Justice.
They claimed to have dozens of employees earning wages at four different entities when, in fact, there were no employees working for any of the businesses, according to a DOJ news release issued Tuesday.
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Congress created the PPP in March as part of the CARES Act, the federal response to the COVID-19 pandemic, which has forced social distancing steps that have forced millions of small businesses to contract or close entirely. They have allocated more than $660 billion for the program, which has approved loans for some 4 million businesses.
The program offers loans of up to $10 million to businesses with 500 or fewer workers that were operating as the COVID-19 pandemic began affecting the country. The loans are completely forgiven if at least 75% of the money is spent on keeping or rehiring employees. The rest must be spent on business-related expenses such as rent or utilities.
Benczkowski, who is leading the enforcement effort, said inquiries already number in the “double-digits” and are scattered across the country. He declined to attach a specific number to the open investigations, saying that new information continues to be evaluated by federal prosecutors in many of the department’s 94 jurisdictions.
In preparation for the enforcement effort, the assistant attorney general said authorities have drawn on their past prosecution of fraud cases in the aftermath of Hurricane Katrina in 2005 and the financial crisis in 2008, when billions in federal money flowed to assist in the recoveries.
The National Center for Disaster Fraud, created in the wake of Katrina, is now serving as a clearinghouse for information about potential crimes related to the SBA program.
“It’s important that we go after every one of these cases,” Benczkowski said. “We have the resources we need to work this. We have the full benefit of all 94 U.S. attorneys’ offices across the country.”
Staveley and Butziger are charged with conspiracy to make false statements to influence the SBA and conspiracy to commit bank fraud. In addition, Staveley, who allegedly posed as his brother in real estate transactions, is charged with aggravated identity theft and Butziger is charged with bank fraud.
According to court documents unsealed Tuesday in U.S. District Court in Providence, Rhode Island, the pair applied for loans for businesses that were not operating prior to the start of the COVID-19 pandemic and had no salaried employees. In one instance, a loan was sought for a Rhode Island restaurant the applicant did not own, according to the federal complaint.
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Staveley and Butziger allegedly discussed via email the creation of fraudulent loan applications and supporting documents to seek the loans, according to the charging documents.
Staveley applied for loans of more than $438,500, claiming he had dozens of employees at three restaurants he owned, two in Warwick, Rhode Island, and one in Berlin, Massachusetts, according to the DOJ compliant.
A DOJ investigation determined that one of the Rhode Island restaurants, the former Remington House, and the Massachusetts restaurant, On The Trax, were not open for business prior to the start of the COVID-19 pandemic, at the time the loan applications were submitted, or at any time thereafter, according to the complaint. In addition, Staveley did not own or have any role in the second Rhode Island restaurant, Top of the Bay, for which he was seeking financial relief, according to DOJ.
Butziger filed an application on April 6 seeking a $105,381 SBA loan under the PPP as owner of an unincorporated entity named Dock Wireless, according to the complaint.
Butziger claimed in documentation filed with the bank and in a telephone call with an FBI undercover agent posing as a bank compliance officer that he planned to use the loan to pay seven full-time employees on Dock Wireless’ payroll, including himself, an assertion that turned out to be false, according to the DOJ.
“Tens of millions of Americans have lost their jobs and have had their lives thrown into chaos because of the coronavirus pandemic,” said U.S. Attorney Aaron L. Weisman for the District of Rhode Island. “It is unconscionable that anyone would attempt to steal from a program intended to help hard working Americans continue to be paid so they can feed their families and pay some of their bills.”