An ex-NFL player defrauded the federal small business coronavirus program of $24 million, which he blew on shopping sprees at Gucci and Dior and trips to the casino. Unfortunately, he’s not alone.
While shops, restaurants, and small businesses nationwide struggled to keep their doors open during the pandemic, miscreants used this crisis to steal from the government and rip off taxpayers. This is a cautious reminder that accountability and fraud prevention must be part of discussions about additional stimulus funds.
Criminals come out during a crisis
Last week, 32-year-old Joshua J. Bellamy, of St. Petersburg, Florida, was charged for his role in a scheme to file fraudulent loan applications for Paycheck Protection Program (PPP) funding.
The ex-New York Jets wide receiver received over $1.2 million for his own company and sought PPP loans on behalf of family members and close associates totaling over $24 million. Many of the loans were approved and at least $17 million was paid out.
Bellamy had good taste. He allegedly purchased over $100,000 in luxury goods at Dior, Gucci, and jewelers. He also blew over $60,000 at one casino and withdrew over $300,000 from the business accounts for his own use.
Bellamy is not alone.
Charges were filed against seven individuals from Georgia and South Carolina in another PPP fraud ring. The individuals fraudulently obtained nearly $400,000 in PPP loans in connection with a $2.1 million money-laundering scheme.
In May, a Hollywood executive was arrested for pocketing some of the $1.7 million in PPP loan funding he secured for his production company to pay off his personal credit card debt and other personal expenses.
In June, the owner of a wedding planning company was charged for attempting to fraudulently obtain over $3 million in PPP funds to pay non-existent employees. Instead, he pocketed the $1.5 million he received and bought himself a Tesla.
More stories have emerged of individuals and groups working together to defraud this program and undoubtedly, more cases are being investigated.
PPP was meant for good
The Paycheck Protection Program was created to keep small businesses afloat during the pandemic. Passed as part of the CARES Act in March 2020, Congress originally authorized up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses. The program was so popular that one month later, Congress authorized over $300 billion in additional funding to the PPP.
(The program officially closed August 8, 2020, and is no longer accepting applications.)
In an effort to disburse the funds quickly, lenders were allowed to rely on the documentation that borrowers provided to determine their eligibility. That enabled fraudsters to be approved based on fraudulent documentation.
As a result, in a report of CARES Act funding, the Government Accountability Office (GAO) recommended that the Small Business Administration (SBA) “develop and implement plans to identify and respond to risks in PPP to ensure program integrity, achieve program effectiveness, and address potential fraud.”
A risk-management firm estimates that there’s likely a billion dollars worth of fraud in the PPP. That represents a tiny portion of the nearly $650 billion program, but we do not know for sure just how widespread fraud is within the program.
We have maintained that any stimulus aid should be targeted, temporary, and flexible. The PPP was meant to be targeted at companies that were truly struggling to pay their workers and keep the lights own when their operations were shut down by the government and the demand for their goods and services plummeted as Americans hunkered down in their homes.
While headlines focused on the multi-million and multi-billion-dollar companies and institutions that secured funds meant for small businesses, not as much attention has focused on other ways that this program has been misused, fraud.
We may still be in a pandemic, but public agencies should not abandon the important goals of eliminating waste, fraud, and abuse of public funds. At a time when funds are limited, we should have confidence that they are spent wisely.
To the GAO’s point, implementing safeguards now will not just ensure this program’s integrity, but set a model for future emergency funding programs if we find ourselves in another pandemic or global disaster.