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Prosecutors Struggle to Catch As much as a Tidal Wave of Pandemic Fraud


Within the midst of the pandemic, the federal government gave unemployment advantages to the incarcerated, the imaginary and the dead. It sent money to “farms” that turned out to be front yards. It paid individuals who were on the federal government’s “Do Not Pay List.” It gave loans to 342 individuals who said their name was “N/A.”

Because the coronavirus shuttered businesses and compelled people out of labor, the federal government sent a flood of relief money into programs geared toward helping the newly unemployed and bolstering the economy. That included $3.1 trillion that former President Donald J. Trump approved in 2020, followed by a $1.9 trillion package signed into law in 2021 by President Biden.

But those dollars got here with few strings and minimal oversight. The result: one in all the most important frauds in American history, with billions of dollars stolen by 1000’s of individuals, including not less than one amateur who boasted of his criminal activity on YouTube.

Now, prosecutors try to catch up.

There are currently 500 people working on pandemic-fraud cases across the offices of 21 inspectors general, plus investigators from the F.B.I., the Secret Service, the Postal Inspection Service and the Internal Revenue Service.

The federal government has already charged 1,500 individuals with defrauding pandemic-aid programs, and greater than 450 people have been convicted up to now. But those figures are dwarfed by the mountain of suggestions and leads that investigators still must chase.

Agents within the inspector general’s office on the Labor Department have 39,000 investigations going. About 50 agents in a Small Business Administration office are sorting through two million potentially fraudulent loan applications.

Officials already concede that the sheer variety of cases implies that some small-dollar thefts may never be prosecuted. This month, Mr. Biden signed bills extending the statute of limitations for some pandemic-related fraud to 10 years from five, a move geared toward giving the federal government more time to pursue cases. “My message to those cheats out there’s this: You possibly can’t hide. We’re going to seek out you,” Mr. Biden said through the signing on the White House.

Investigators say they hope the time beyond regulation will allow them to be sure that those that defrauded the federal government are ultimately punished, restoring a deterrent that had vanished in a flood of lies and money.

“There are years and years and years of labor ahead of us,” said Kevin Chambers, the Justice Department’s chief pandemic prosecutor. “I’m confident that we’ll be using every last day of those 10 years.”

The federal government provided about $5 trillion in relief money in three separate legislative packages — an unlimited sum that’s credited with reducing poverty and saving the country from a chronic, painful recession.

But investigators say that Congress, in its haste to get money out the door, devised all three packages with the identical flaw: counting on the glory system.

For instance, an expanded unemployment profit gave staff an additional $600 per week in federal jobless funds on top of what they received from their state. This system was funded by the federal government but administered by states, which frequently had loose rules around qualifying. Applicants didn’t need to offer proof they’d lost income due to Covid-19; they simply needed to swear it was true.

An analogous we’ll-take-your-word-for-it approach was utilized in two loan programs run by the Small Business Administration.

They were the Paycheck Protection Program, through which the federal government guaranteed loans made by private lenders, and the Economic Injury Disaster Loan program, through which the federal government itself gave out loans and smaller advance grants that didn’t must be repaid. In each, the federal government trusted businesses to self-certify that they met key requirements.

Each the Labor Department and the Small Business Administration said that they’d tried to screen those claims — and that they did reject billions of dollars’ price of applications that didn’t make sense. But that was not enough.

In some cases, the programs missed schemes that were comically easy to identify. In a single instance, 29 states paid unemployment advantages to the identical person. In one other, a Postal Service worker got an $82,900 loan for a business called “U.S. Postal Services.” One other individual got 10 loans for 10 nonexistent bathroom-renovation businesses, using the e-mail address of a burrito shop.

Within the Paycheck Protection Program, private banks were imagined to help with the screening, since in theory they were coping with customers they already knew. But that overlooked many small businesses, and the federal government allowed online lenders to enter this system. This yr, University of Texas researchers found that a few of those “fintech” lenders appeared less diligent about catching fraud.

In one other case, a mother and daughter in Westchester County, N.Y., stand accused of turning fraud right into a franchise — helping other people cook up fake businesses with a view to get loans from the Economic Injury Disaster program.

Andrea Ayers advised one client to inform the federal government she ran a baking business from home, although she was not a baker, prosecutors said.

“You bake,” Ms. Ayers texted to the client, adding 4 laugh-crying emojis, in keeping with charging documents.

“Lol,” the client wrote back.

The scheme, prosecutors said, was intended to make the most of the Small Business Administration’s advance grant program, which provided applicants as much as $10,000 up front while the agency decided whether to award a bigger loan. Even when the loan was rejected, in lots of cases the applicant could still keep the grant.

Prosecutors said Ms. Ayers’s daughter, Alicia Ayers, texted one other client that the small size of the grants meant they were unlikely to be punished: “10k will not be enough for jail time lol.”

The federal government charged each Ayerses with wire fraud. They’ve pleaded not guilty. Their lawyers didn’t reply to requests for comment.

In some corners of the web, schemes to defraud were discussed in chat rooms and YouTube videos, where scammers offered to assist for a cut of the proceeds. Some used the cash on necessities, like mortgage bills or automobile payments. But many looked as if it would act out of opportunism and greed, splurging on a yacht, a mansion, a $38,000 Rolex or a $57,000 Pokémon trading card.

Vinath Oudomsine bought the Pokémon card in January 2021, after receiving a loan from the Small Business Administration for a nonexistent business. He pleaded guilty in October to defrauding the loan program, leaving the U.S. government answerable for selling the cardboard.

Pandemic fraud became such an open secret that it ceased to be much of a secret in any respect. In September 2020, a California rapper named Fontrell Antonio Baines, who performs as Nuke Bizzle, posted a music video on YouTube, bragging intimately about how he had gotten wealthy by submitting false unemployment claims. His song was called “EDD,” after California’s Employment Development Department, which paid the advantages.

“I just seen 30 cards land in in the future. Got straight on the phone and activate,” Mr. Baines rapped within the song, flashing money and envelopes with preloaded debit cards from the state.

“Unemployment so sweet,” he said.

All three of those programs are actually over. There isn’t any official estimate for the amount of cash that was stolen from them — or from pandemic-relief programs normally. The Justice Department has charged individuals with about $1 billion in fraud up to now, and is investigating other cases involving $6 billion more, investigators said.

But other reports have suggested the actual number could possibly be much higher. One official said the overall of “improper” unemployment payments could possibly be greater than $163 billion, as first reported by The Washington Post. Within the Economic Injury Disaster Loan program, a watchdog found that $58 billion had been paid to corporations that shared the identical addresses, phone numbers, bank accounts or other data as other applicants — an indication of potential fraud.

“It’s clear there’s tens of billions in fraud,” said Michael Horowitz, the chairman of the Pandemic Response Accountability Committee, which incorporates 21 agency inspectors general working on fraud cases. “Wouldn’t it surprise me if it exceeded $100 billion? No.”

The hassle to catch fraudsters began as soon as the cash began flowing, and the primary person was charged with profit fraud in May 2020. But investigators were quickly deluged with suggestions at a scale they’d never handled before. The Small Business Administration’s fraud hotline — which had previously received 800 calls a yr — got 148,000 in the primary yr of the pandemic. The Small Business Administration sent its inspector general two million loan applications to ascertain for potential identity theft. On the Labor Department, the inspector general’s office has 39,000 cases of suspected unemployment fraud, a 1,000 percent increase from prepandemic levels.

But prosecutors face a key drawback: While fraud takes minutes, investigations take months and prosecutions take even longer.

Mr. Baines, who detailed his jobless profit scheme on YouTube, was arrested in September 2020, when the Las Vegas police found other people’s unemployment-benefit cards in his automobile. Mr. Baines pleaded guilty to mail fraud last month. His lawyers declined to comment.

Hannibal Ware, the Small Business Administration’s inspector general, said his office has tried to deal with cases involving large thefts, profession criminals or ringleaders who organized a fraud operation.

“Only about 50 working field agents, right? So how do I take one in all my agents off of a $20 million case to work a $10,000 case?” said Mr. Ware, who’s referred to as Mike. “Because they’ll tell me, ‘Mike, the work is identical.’”

That has allowed many individuals who took advantage of presidency programs to go unpunished. Despite ample evidence of individuals fraudulently obtaining $10,000 advance grants, Mr. Ware’s office has not sought charges for cases involving only a single grant, falsely obtained. It could cost greater than $10,000 just to analyze every one.

In all, that program awarded 3.9 million loans totaling about $389 billion, on top of $27 billion in grants that didn’t must be repaid, in keeping with the Small Business Administration. Most of the allegations of fraud within the grants program date to the first weeks of the pandemic, when the federal government gave out 5.8 million advance grants price $19.7 billion in only over 100 days. In that program, fraud was easy to tug off, in keeping with a government watchdog, which cited quite a few loans given to businesses that were ineligible for funding.

Mr. Ware said he recently limited his agents to working 10 cases at a time, telling them: “You’re killing yourself. I even have to guard you from you.”

In some cases, lawyers for those charged with committing pandemic fraud have sought to argue that their clients ought to be judged less harshly for stealing because the federal government made it really easy.

The federal government “was handing out money with no checks, and quite a lot of people took advantage of that,” Ashwin J. Ram, a lawyer for the convicted fraudster Richard Ayvazyan, told The Latest York Times in November.

“It’s a honey trap,” he added. “Richard Ayvazyan fell into that trap.” Mr. Ayvazyan was sentenced to 17 years in prison for participating in a hoop that sought $20 million in fraudulent loans.

Within the case of Mr. Oudomsine, the Pokémon card buyer, his lawyers argued in March that a judge ought to be lenient in deciding his sentence since the fraud had taken hardly any time in any respect.

“It’s an event without significant planning, of limited duration,” said Brian Jarrard, who was Mr. Oudomsine’s lawyer on the time.

That didn’t work.

Judge Dudley H. Bowen Jr. of U.S. District Court sentenced Mr. Oudomsine to 3 years in prison, greater than prosecutors had asked for, to “exhibit to the world that that is the consequence” of fraud, in keeping with a transcript of the sentencing.

Now, Mr. Oudomsine is appealing, with a latest lawyer and a latest argument. Deterrence, the brand new lawyer argues, is moot here since the pandemic-relief programs are over.

“There’s no option to deter someone from doing it, when there’s no way they’ll do it any longer,” said the lawyer, Devin Rafus.

Biden administration officials say they try to organize for the following disaster, in search of to construct a system that may quickly check applications for signs of identity theft.

“Criminal syndicates are going to search for weak links at moments of crisis to attack us,” said Gene Sperling, the White House coordinator for pandemic aid. He said the White House now goals to construct a seamless system that may detect identity theft quickly in applications for aid: “The proper time to begin constructing a stronger system to forestall identity theft is now, not in the midst of the following serious crisis.”

Within the meantime, the arrests go on.

Last week, prosecutors charged a correctional officer at a federal prison in Atlanta with defrauding the Paycheck Protection Program, saying she had received two loans totaling $38,200 in 2020 and 2021. The officer, Harrescia Hopkins, has pleaded not guilty. Her lawyer didn’t reply to a request for comment.

“You possibly can’t have a system where crime pays,” said Mr. Horowitz, of the federal Pandemic Response Accountability Committee. “It undercuts your complete system of justice. It undercuts people’s faith in these programs, of their government. You possibly can’t have that.”

Seamus Hughes contributed reporting.

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