Federal prosecutors have announced the first fraud case under a loan program that Congress recently created to help small businesses keep their employees during the coronavirus pandemic.
The Justice Department announced the arrest Tuesday of two businessmen from Rhode Island and Massachusetts for seeking to fraudulently obtain more than $500,000 in forgivable loans for dozens of people they did not employ.
The loans, guaranteed by the Small Business Administration, are offered by community banks and other financial institutions to small businesses affected by the pandemic. The SBA’s Paycheck Protection Program was created in late March under the CARES Act, a $2.2 trillion coronavirus recovery package.
Law enforcement officials say no employees worked at the four businesses run by David Staveley of Massachusetts and David Butziger 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,” U.S. Attorney Aaron L. Weisman for the District of Rhode Island said in a statement.
Staveley and Butziger were charged with conspiracy to make false statements to influence the SBA and commit bank fraud.
Congress allocated nearly $350 billion in small-business loans for the program, but the program quickly ran out of funds, as hundreds of thousands of small businesses applied for loans of up to $10 million. Last month, Congress approved a supplementary package, setting aside an additional $310 billion for the program.
Financial fraud experts have warned that the sheer size of the aid program and the speed with which it has been carried out threatens to create a perfect storm for fraud and abuse on a magnitude not seen before.
Experts say the case announced Tuesday signals what lies ahead and that billions of dollars are likely at risk as fraudulent businesses try to rip off the government.
To prevent waste and abuse, Congress has created three overlapping oversight bodies, while the Justice Department is focusing on coronavirus-related fraud, bringing charges in several cases in recent weeks.
In loan applications requesting more than $438,000, Staveley claimed he had dozens of employees at three restaurants he owned. Investigators found that two of the restaurants were not open for business before the pandemic, and Staveley did not own the third restaurant.
Butziger sought more than $100,000 in his application, claiming he had seven full-time employees at an unincorporated business. Investigators learned that none of the seven worked at the business.
“Thankfully, we were able to stop them before taxpayers were defrauded, but today’s arrests should serve as a warning to others that the FBI and our law enforcement partners will aggressively go after bad actors like them who are utilizing the COVID-19 pandemic as an opportunity to commit fraud,” said Special Agent in Charge Joseph R. Bonavolonta of the FBI’s Boston Field Office.
