Justice Department indicts Minnesota contractor for $841K PPP loan fraud | #employeefraud | #recruitment | #corporatesecurity

Dive Brief:

  • The U.S. Department of Justice (DOJ)  has indicted a St. Paul, Minnesota, contractor for allegedly defrauding the Paycheck Protection Program, a special limited loan initiative meant to provide financial relief to businesses negatively impacted by the COVID-19 pandemic. 
  • U.S. Attorney Erica H. MacDonald said in a statement that Kyle William Brenizer applied for and received an $841,000 PPP loan under the name of his defunct construction company, True-Cut Construction LLC. 
  • As part of the PPP application process, prosecutors allege that Brenizer submitted false employee and expense information, as well as fraudulent financial and tax documents, and then transferred $650,00 into a bank account unrelated to True-Cut. 

Dive Insight:

Brenizer also allegedly failed to disclose on the PPP application, as required, that he has several criminal charges pending against him for check forgery, identify theft and theft by swindle. Penalties for knowingly submitting false information in order to secure PPP funds, according to the program application, include a maximum of 30 years in prison and fines of up to $1 million.

According to the allegations in the indictment, instead of using the PPP funds for permissible business expenses, Brenizer made a $29,000 payment to purchase a Harley-Davidson motorcycle and spent more than $1,000 on golf expenses, among other retail and entertainment expenditures for his personal benefit.

The government rolled out the PPP loan plan as part of the CARES Act this spring, as soon as it became apparent that the pandemic was going to deliver a major blow to the U.S. economy. The relatively short turnaround time between application and the receipt of funds, as well as evolving guidance and rule changes, meant that oversight on the front end of the process was limited, but the Treasury Department made it clear that the chance of an audit after recipients received PPP funds was high. 

That confusion about borrower liability, what expenses were forgivable, along with the fact that many lenders were having problems processing applications in the first round’s rush led many contractors to either withdraw their applications or return the money, according to an Associated General Contractors of America survey.

The PPP, which is administered by the Small Business Administration, closed to new applications Aug. 8. As of that date, the program approved $525 billion in loans out of a total available pool of $659 billion. Construction industry companies came away with approximately $65 billion. 

The rules for the program are complex, and, in some cases, it could be difficult to determine whether the applicants mistakenly or purposefully submitted bad information. However, some borrowers’ actions leave little doubt that their intention was to abuse the loan opportunity, and the Benizer case is just one that the DOJ is pursuing against contractors.

In July, for instance, the DOJ filed criminal charges against Washington, D.C., contractor Oludamilare Olugbuyi for allegedly submitting for two PPP loans totaling $400,000 using false and fraudulent documents, including fake IRS Forms 1099-MISC representing hundreds of thousands of dollars paid to nonexistent independent contractors.

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