Ohioans disenchanted with the past two years of public corruption cases (see our previous post on that subject here) may no longer have to tolerate the seemingly endless number of Ohio politicians being indicted for bribery. That’s because apparently now they’re being indicted for fraud.
Cincinnati activist and perennial political candidate Kelli Prather was indicted earlier this month on a number of federal charges stemming from allegations that she improperly filed six applications for loans from the Small Business Administration Paycheck Protection Program (PPP). Readers of Does Crime Pay? know that we have followed “COVID-19 Fraud” very closely since our inception last year. Unhappily for Prather, the facts outlined in the indictment against her provide us with the perfect opportunity to revisit the current state of play with government enforcement against COVID-19 Fraud.
The Prather Case
The following facts are taken from the affidavit in support of the criminal complaint filed against Prather and are merely unproven allegations. According to the affidavit, Prather applied for six different PPP loans from June 23, 2020 to August 4, 2020. Prather opened six business bank accounts immediately after filing those applications. While the bank did grant one of the six loan applications, it then discovered a number of other errors with Prather’s application that apparently raised the bank’s (and, eventually, the government’s) suspicions.
First, the bank flagged that Prather had used an inaccurate PIN number on her application. Then, the bank identified that the information input on the forms was for 2020, as opposed to 2019. Next, the bank identified that there were five other pending PPP applications submitted by Prather. The five other applications were for five different businesses, which claimed to employee 22 people in total.
When the FBI conducted its review of Prather’s loan applications, special agents identified several facts suggesting fraud:
- Although Prather claimed large average monthly payrolls for some of her businesses in 2020, her 2019 filings indicated much smaller total annual income;
- Prather’s applications listed residential addresses for multiple of her businesses;
- None of the businesses maintained any web presence, marketing material, advertising, or other records tending to indicate that they could generate the revenues or support the number of employees claimed;
- Prather’s bank transactions indicated money was either being pocketed by Prather or was funding personal expenses such as salon and restaurant purchases;
- When interviewed, several individuals listed as “partners” on one of Prather’s applications indicated that while they had discussed a possible business, no business was ever consummated. Prather had provided their social security numbers as part of the application;
- When interviewed, a former business and romantic partner indicated that he never knew Prather to have an operational, functional, or profitable business located at the address Prather listed for one of the businesses;
- When interviewed, Prather admitted spending some funds on personal expenses.
Although Prather’s applications requested over $600,000 in PPP loans, she ultimately only collected $19,800. Regardless, Prather has been charged with bank fraud, aggravated identity theft, making false statements, making false statements in connection to credit or loan applications, and false representation of a social security number.
Government Enforcement Against COVID-19 Fraud
Prather’s case highlights precisely what not to do when it comes to PPP applications. As we noted in August and November of last year, the DOJ has demonstrated a commitment to prosecuting COVID-19 Fraud and there is no end in sight. In August we warned entities making applications must take great care to avoid making a false certification in any of the following categories:
- Whether the individual or entity is a convicted felon;
- Whether the entity has already received a PPP loan;
- Reporting fictitious or inflated numbers of employees;
- Using a fictitious business name to acquire PPP loans;
- Using fraudulent or forged documents in connection with acquiring a PPP loan;
- Creating a business after February of 2020 to acquire a PPP loan;
- Purchasing unauthorized goods or services with PPP loan funds;
- Funneling PPP loans to other organizations or entities; and
- Perpetuating pre-existing fraud schemes.
In November, we argued that—similar to the allegations against Prather—“the vast majority of PPP fraud cases brought so far” involved misrepresentations like fabricating the business’s number of employees, or using the funds for personal purposes. Now, after over a year of enforcement actions, DOJ and U.S. Attorneys’ Offices around the country appear to have begun prosecuting smaller-scale offenders. For example, in a statement made to the media Acting U.S. Attorney Vipal J. Patel noted that Prather’s indictment, which came alongside three similar but separate indictments of others, is the fourth round of charges for similar fraud cases in the Southern District of Ohio. Similarly, a DOJ press release last month identified at least 120 defendants charged with PPP fraud, ranging from “individual business owners who have inflated their payroll expenses” to “organized criminal networks submitting identical loan applications and supporting documents under the names of different companies.”
Though we hope that COVID-19 is nearly behind us, it’s safe to say that we are not yet through with prosecutions and other enforcement against COVID-19 Fraud.