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Business Observer Friday, Jul. 29, 2022 1 week ago

Prosecutors and investigators in Florida take on COVID fraud

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With trillions of dollars handed out during the pandemic, the opportunity for fraud was ripe. Now federal prosecutors locally are going after the criminals — and the stolen funds.
by: Louis Llovio Commercial Real Estate Editor

As federal investigators looked into a violent street gang in Tampa, prosecutors from the U.S. Attorney’s Office had a hunch.

An operation that traffics drugs and arms itself, like any enterprise, needs operating capital to run day to day, it needs money to make money. And what do criminal organizations do when they need money? They don’t walk into a bank and simply ask for a line of credit.

Armed with that understanding, and experience from previous cases, federal prosecutors in Tampa began searching the financial records of gang members and discovered several had applied for and, by committing fraud, illegally received about $3 million set aside for COVID-19 relief.

Earlier this year, three members of the gang — Keaujay Hornsby, 26, Kareem Spann, 27, and Tywon Spann, 25 — pleaded guilty to racketeering conspiracy connected to violent crimes, drug trafficking and COVID relief fraud. Several other members also pleaded guilty to conspiring to commit fraud and identity theft.

While the investigation and prosecution of the street gang makes for great headlines, it is just one case in a much larger effort by the U.S. Attorney’s Office for the Middle District of Florida to track down  COVID relief fraud perpetrators. The office, to date, has prosecuted 34 defendants who allegedly defrauded the government of nearly $51 million. Of those, 25 have been found guilty and nine are awaiting trial.

And, says U.S. Attorney Roger Handberg, the team is far from done.

U.S. Attorney for the Middle District of Florida Roger B. Handberg (Photo by Mark Wemple)

“I will tell you one of the things I’m the most proud of in our district. If you look at our white collar prosecutions this calendar year versus the same period of time from last calendar year, they’re up over 50%,” Handberg says, in an interview with the Business Observer

“And the reason they’re up over 50%, is we have prosecutors in each of our five offices who’ve made these types of cases a priority and they will continue to be a priority.”

 

The crime

The local U.S. Attorney’s office is part of a joint effort between federal, state and local law enforcement agencies working to track down those who took advantage when trillions of dollars became available to help businesses and individuals struggling during the pandemic.  

This assistance came in the form of the Paycheck Protection Program, Economic Injury Disaster Loans, the Main Street Lending Program and Unemployment Insurance, all designed to give people and businesses a hand up during a terrifying time.

According to the nonprofit, bipartisan Committee for a Responsible Federal Budget, the government, through these programs, pumped trillions into the economy.

Given the amount of money available, it was almost a certainty that bad actors would take advantage of the situation, putting money in their own pockets. With that understanding, officials from early on were prepared to go after them.

Read more: Defense attorneys push back at PPP fraud allegations

That preparation paid off.

According to the U.S. Department of Justice, nationwide about 500 defendants have been charged in more than 340 cases totaling $700 million in COVID-related fraud.

The department says the PPP and EIDL cases “involve a range of conduct,” from business owners who inflated payroll expenses to get larger loans, to “serial fraudsters” who revived dormant companies or purchased shell companies and created payrolls out of nothing, to organized criminal organizations that submitted multiple loan applications with the same supporting documentation for multiple companies.

In Texas, one defendant, Dinesh Sah, applied for 15 PPP loans from eight different lenders using 11 different companies. Sah sought $24.8 million but only got $17.3 million. The money went to buy several homes, jewelry and luxury vehicles, officials alleged. 

Sah pleaded guilty in 2021 to wire fraud and money laundering. He is currently serving time in a Louisiana prison. According to the Federal Bureau of Prisons, Sah, now 56, will be released April 15, 2030.

That’s just one example. 

There’s the Seattle doctor convicted of wire fraud, bank fraud and money laundering for applying for $3.5 million in PPP loans in the name of businesses with no operations. There’s the Maryland man who filed more than $2.7 million in fraudulent unemployment insurance claims.

And, not to be outdone, 15 people in two states were charged in Texas for creating 80 PPP applications seeking $35 million and falsifying the number of employees and the monthly payroll figures. Six of the defendants pleaded guilty and nine are awaiting trial.

And these are the ones who have been caught.

To help catch those who committed the fraud — and stop others — in May 2021 the U.S. Attorney General established the COVID-19 Fraud Enforcement Task Force to bring several law enforcement agencies together. The task force’s job includes helping agencies already investigating and prosecuting cases as well as creating best practices.

In a memo to the task force, Attorney General Merrick Garland said the department “will use every available federal tool—including criminal, civil and administrative actions—to combat and prevent COVID-19 related fraud.”

 

The badge

For Handberg, leading a district that prosecutes white collar criminals is a natural.

He started out in private practice before becoming a prosecutor about 20 years ago. One of his first assignments was investigating and prosecuting FEMA fraud cases after Hurricane Katrina in 2005. Mind you, he says, this was Central Florida, where the storm never hit. Meteorological and geographical realities aside, he prosecuted more than 40 people.

Several years later he took on another hurricane, Lou Pearlman.

Perlman was the larger-than-life promoter of boy bands NSync and the Backstreet Boys who swindled millions from banks and investors in a long-running Ponzi scheme. An associate U.S. Attorney at the time, Handberg helped bring Pearlman down, sending him to prison for 25 years and, in 2008, getting $300 million for victims.

Pearlman died in 2016.

Garland appointed Handberg U.S. Attorney of the Middle District in December 2021. According to his official biography, he’s prosecuted more than $500 million in fraud cases.

Read more: Pinellas man, 22, allegedly laundered PPP funds through fictitious charity

Given what he’s seen, there’s not much that surprises Handberg. So, the audacity of criminals who spend millions in stolen money on boats, houses, jewelry, exotic cars and who knows what else doesn’t drive him. And it doesn’t drive how the Middle District goes about its work.

But that doesn’t mean he’s immune to the audacity of criminals.

“I wouldn’t say I’m jaded. But I would say that there are times where the conduct I see makes (me) angry because these are well meaning programs that were designed to help people during a pandemic,” he says.

“And there’s a group of individuals, and it’s a small group, you’ve always got to keep that in mind and keep that in context, but there’s a small group of people who want to take advantage of it. And that’s not right.”

 

The chase

When the federal task force was announced in 2020, the Middle District was already prosecuting COVID fraud cases.

In March 2020 the district, says Handberg, created a task force that brought together state, local and federal law enforcement agencies.

“What our goal was, and what our role is, is to work with our law enforcement partners to find, attack and, to the extent we can, remedy those type of violations or stop them from happening. That’s what we’ve been doing.”

The Middle District is one of three judicial districts in Florida, and its coverage runs from Naples north to Ocala, then east, across Orlando, and north again to Jacksonville. The other two federal districts are south in Miami and north in Tallahassee.

To date, the Middle District has worked with about 10 agencies on cases. These are the agencies you’d expect to see on a white collar prosecution — FBI, Secret Service, the Federal Reserve and the IRS. But prosecutors have also worked a lot with the Small Business Administration and the Department of Labor as well local sheriff’s offices investigating cases.

Handberg says it’s “really been an all hands-on deck situation based on the needs of the particular case because we have different types of COVID fraud cases that we’ve been focused on.”

He believes given the aggressive approach the first COVID fraud case to go to trial in the country may have been one the office prosecuted in Fort Myers.

That case was against Casey David Crowther who got $2.1 million in a PPP loan by saying the money would go to pay employees, rent and utilities for his company, Target Roofing and Sheet Metal Inc.

Instead, he bought a $700,000 boat and made other personal purchases. To cover his tracks, he created 39 fake employees, complete with Social Security cards, and lied to the bank about the expenses.

He was convicted March 2021 and sentenced to three years and one month in federal prison. Crowther is appealing that conviction.

“I think that one was especially impactful because that was early in the pandemic,” Handberg says. “And, you know, I think it helped to send a good message that this office was going to follow through on these cases and take them to trial and do what we can to hold people accountable for this type of fraud.”

Read more: Hialeah man's scheme netted $1.9M in PPP funds

Not everyone agrees with how the cases are being investigated and prosecuted.

Nicole Hughes Waid, a white-collar criminal defense attorney in the Naples office of FisherBroyles, represented Crowther.

While declining to speak specifically about the Crowther case, Waid says there is more nuance and gray areas in many PPP loan prosecutions than might appear at first glance. "A defendant applying for a PPP loan with a fake company is clearly fraud," she says. “That’s easy.”

But in other cases she’s both worked on and researched, the nuance comes in intent and the way the PPP regulations were written. “I believe the government is misconstruing the CARES act with many of its analyses of companies,” she says. “It’s a misapplication of the statute.”

Waid says a company that uses PPP loans for something other than the stated requirements isn’t doing something illegal. A company that uses the funds in other ways will likely be forfeiting its right to a 100% forgivable PPP loan, she says, but that isn’t a crime. “If the government wanted it to be strictly for something like emergency payroll,” Waid says, “the statute should’ve said that.”

 

Open book

Prosecutors in all five of the Middle District’s offices are working on COVID fraud cases, with an economic crime division in Tampa handling many of them.

The Middle District has an asset recovery division and a civil division as well. The civil division, in March 2020, took down a website making false claims about personal protection equipment items it was selling.

There’s one other factor that helps the prosecutors working in Florida. The state’s public records laws allow an investigator to simply log on to the Florida Department of State’s website to find out when a company was incorporated. So, if a business incorporated a day before a loan request came in, that’s a potential badge of fraud the investigators and prosecutors will look into.

But with all the resources at prosecutors’ fingertips, choosing the right case to go after usually comes down to the same thing that motivates the crooks: money sitting there for the taking.

Handberg says the driving force often behind what cases are prosecuted first is not the severity of the crime but how much money prosecutors will be able to recover for victims. If prosecutors find that someone has received funds through fraudulent means, they look to see if the money is there or if there are assets that can be seized.

This is because one of the main objectives of prosecuting fraudsters is making the victims whole.

Once a subject is identified, investigators begin to look at bank records to confirm revenue figures on an application, check to see if the number of employees claimed is accurate and, in a lot of cases, check to see if the company asking for money even exists.

Asked if prosecutors are looking at banks or bankers that were richly rewarded for writing loans, to see if a blind eye was turned when applications were filled out or if there was some other type of malfeasance, Handberg declines to answer.

“Well, I would have to put that in the generic category of we’re always going to go where the evidence takes us,” he says. “And I’m not really in a position to make any broader comment other than that’s what we do in this office. We go where the evidence takes us. And so that’s what we’ll continue to do.”

And if, as the saying goes, past behavior is a predictor of future behavior, there will be plenty of evidence for prosecutors to follow.

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