US Attorney targets widespread CARES act fraud in north Mississippi
Aug. 20—OXFORD — Federal officials estimate that more than half of the $2.6 billion CARES act funding handed out in north Mississippi was done illegally.
"Nationwide, it is estimated that 10% is fraudulent," said U.S. Attorney Clay Joyner. "What we are finding locally is that is a gross underestimate. In this district (Northern Mississippi), we estimate the number is well north of 50%."
A Starkville man was convicted this month for stealing $6 million in Paycheck Protection Program (PPP) loans. While there may be some bigger frauds out there in the 37-county northern district, Joyner said the majority of the 65,000 PPP loans distributed in north Mississippi are in the $30,000-$40,000 range.
PPP loans are based on a company's average monthly payroll and the money can be used for payroll, rent and utilities. The company had to be in business for at least two years before the pandemic and have a gross annual income of at least $100,000. A sole proprietor could get a maximum of $20,883. Most businesses were eligible for two draws, getting to that $40,000 mark.
If the business kept the number of employees and wages stable, the loans were forgiven in most instances. That fact made the relief program appealing for people looking to make easy money.
"PPP was created as an emergency assistance program," Joyner said. "The focus was getting the money out the door as quickly as possible to the people who need it. That is good if the only people applying are legitimate, but that is not the case."
Because the money was allocated so quickly, not every application was scrutinized closely. That allowed a host of fraudulent loans to not only be approved but also forgiven.
It is the job of Joyner's staff to put fresh eyes on all of the loans to see which ones were legitimate and which were fraudulent.
"Christopher Lick got $2 million for a (fictitious) business that he claimed had 284 employees and a payroll of $800,000 per month," said Assistant U.S. Attorney Philip Levy, referencing a Starkville man recently convicted of wire fraud for falsely claiming his business of seven people had far more employees than that in order to collected PPP money. "You can go eyeball the building and see if it can hold that many people. If you see a loan that big, it's a good starting point. It raises red flags."
Officials are also seeing cases where one person or group is an aggregator, actively recruiting others to sign up for a fraudulent PPP loan. In exchange, the aggregator gets a percentage of the loan.
If everyone in a community received a PPP loan, then Joyner's office is going to take a closer look.
"Some cases stick out like a sore thumb," said Assistant U.S. Attorney Johnny Gough. "We have been given a 10-year statute of limitations (to prosecute cases) so we will be at this for a while. We do have a target rich environment."
In the most egregious cases, especially ones involving larger dollar amounts, the U.S. Attorney's Office is seeking criminal charges, which can carry substantial prison time as well as full restitution and fines. But for the smaller amounts, the office is filing civil lawsuits to recoup the government's money.
"Through the False Claims Act, we can recover up to three times the loan amount plus penalties," Gough said. "When we contact people, 95% are cooperating and making deals to repay the loans."
In most of the civil cases, the people don't have all the money anymore. Some still have a portion. The government will work with them to set up a repayment plan. By going the civil route, it is easy to work through and settle a high volume of cases.
"We lead the country in civil fillings and have already made a number of civil settlements, recovering well in excess of $1 million," Gough said. "The people who don't cooperate, we sue and get it all back."
The Payroll Protection Program began in February 2020 in order to help businesses keep their doors open during the coronavirus pandemic. Congress allocated more money and approved several extensions that extended the program through June 2021.
"PPP was designed to be a lifeline for small businesses to cling to and make it through the pandemic," Joyner said. "But you kept seeing alerts that funding was gone. Why did the money dry up? Because people like Chris Lick took $6 million they were not entitled to."
The U.S. Attorney's Office will soon begin looking through another 25,000 Economic Injury Disaster Loans (EIDL) that are part of the CARES act. Those are low interest, long-term loans (up to 30 years) that can be used as working capital for ordinary business expenses, such as rent, utilities or any business debt. EIDLs are capped at $2 million and must be repaid.
The EIDL loans are deferred for 30 months, so those are just starting to come due.
