Prevalence of CARES Act Fraud in Small Business

The CARES Act is the Coronavirus Aid, Relief, and Economic Security Act, passed by the United States government in March of 2020, which provided roughly $2 trillion in economic relief to businesses and individuals. The bill was signed into law by President Donald Trump, on March 27, 2020. The CARES Act included several key provisions for small businesses and individuals including stimulus payments for families and individuals, Paycheck Protection Program Loans for struggling businesses, and debt relief for small business loans.

The Paycheck Protection Program (PPP), created by the CARES Act, allows small and medium sized businesses to apply for loans in order to cover costs associated with retaining employees during the pandemic including payroll costs, Employer health care, mortgage obligations, rent, utilities, and other necessary business expenses. While the PPP was created to help keep smaller businesses afloat and to keep civilians employed, some business owners attempted to take advantage of the program. Federal prosecutors recently arrested Rafael Martinez, CEO of MBE Capital Partners, who issued $823 million in PPP loans to 36,000 businesses for PPP fraud. Martinez allegedly falsified financial documents, forged signatures, and reported false payroll numbers and employee counts. MBE was able to obtain $280,000 in PPP loans as well as get approved to administer government-subsidized loans on behalf of the Small Business Administration (SBA).

Samuel Yates, an alleged business owner, was arrested by the Department of Justice for allegedly committing PPP-related wire fraud in excess of $5 million. Yates committed Covid relief-related fraud more than once. The first time, Yates copied a list of 400 names off of the internet and submitted them to the Small Business Administration, claiming them as current wage-earning employees of his business. The second time, Yates obtained 100 names from a random name generator and was able to attain $500,000 in PPP loans to cover the costs of retaining his supposed employees. In addition to the actual wire fraud, Yates also submitted falsified tax documents to the SBA and IRS.

Fraud always has and will continue to be, an issue in business but the implementation of the CARES Act led to an increase in related fraud amongst small and medium sized businesses. The United States government dropped the ball with Coronavirus relief program oversight and allowed widespread fraud to occur under its watch.

Sources:

Expenses funded with PPP loans. (2020). Tax Adviser, 1–4.

Pape, C. (2022). CEO of nonbank lender arrested for PPP-related fraud. American Banker, 187(49), 5–6.

Peabody, R. L., & Plinio, N. A. (2021). Paycheck Protection Program: Government Enforcement, Oversight. Venulex Legal Summaries, 1–3.

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