A new team of federal investigators and prosecutors is using old laws to build new cases alleging the theft of government funds intended to help people weather the COVID-19 pandemic.
“It all ran out very quickly, because there was an incredible need,” said U.S. Attorney for East Washington Vanessa Waldref, referring to the billions of dollars loaned out in the days following the government shutdowns. “But there were also a lot of incredible frauds, and a lot of deserving companies that didn’t get the funds they needed.”
Waldref, who took office in October, said she recognizes in her office the expertise needed to bring large fraud cases, such as those targeting payday lenders, future historic real estate developers and contractors working on the Hanford nuclear cleanup site. A conversation with Weston King, special agent in charge of the Seattle field office of the Small Business Administration, led to the development of a task force assigning these investigators and attorneys to cases involving the theft of money set aside by Congress in coronavirus aid. .
The task force follows U.S. Attorney General Merrick Garland’s announcement in May that the Justice Department would prioritize the investigation and prosecution of COVID-19 fraud cases. Dan Fruchter, an assistant U.S. attorney in the Eastern District of Washington who is one of five prosecutors working on cases, said the division of labor will lead to faster investigations and prosecutions.
“That’s really the goal, to go from our investigative lead to the completion of the investigation in weeks instead of months and years,” Fruchter said.
The bureau publicly announced an indictment and resolution of a case involving a contractor providing occupational health services to workers at the Hanford site. The case involved the alleged theft of $32,400 by Roshon E. Thomas, who the government says formed a corporation in July 2020 and filed documents showing his earnings were harmed by a pandemic that was proclaimed four months before the creation of his company.
Thomas applied for an economic disaster loan through this company, citing payroll and property costs for a company that the government said did not exist. The program allowed a cash front of up to $10,000. Thomas has pleaded not guilty to a two-count wire fraud indictment and is awaiting trial.
Hanford contractor HPM Corporation has admitted falsifying documents regarding its application for the Paycheck Protection Program, a separate program that allowed loans to be forgiven if the company could prove it had spent the majority of his loan in staff costs. HPM agreed to pay $2.9 million in damages and penalties.
The cases were prosecuted under the False Claims Act and federal criminal law prohibiting wire fraud. Both laws were written in the 19th century, one by President Abraham Lincoln to give the federal government the ability prosecute military contractors who provided substandard or non-existent supplies to fight the Civil War. Wire fraud has its origins in the 1870s, when federal lawmakers began to express concern that the Postal Service was being used by city dwellers to defraud rural Americans, according to a February 2019 study by the Congressional Research Service.
Functionally, COVID-19 cases are similar to other types of fraud, Fruchter said. Cases may come to the attention of federal investigators when company formation documents are filed after the pandemic date, as alleged in Thomas’s case. They can also be received through tips from employees or evidence of lavish spending, such as in a case in Florida where a 29-year-old man was arrested and charged following the purchase of a $318,000 Lamborghini sports car.
An added wrinkle in many cases is identity theft, where someone will steal the identity of a person or business in order to file a fraudulent claim for help, Fruchter said.
“It’s a huge problem for the victim. Their credit could be ruined and they may have to pay the money back,” he said. “These are the kinds of cases that we really prioritize.”
Waldref said the task force, inspired in part by a similar effort in Oregon, aims to help protect the interests of small business owners in the region. The Small Business Administration has issued more than 195,000 loans totaling $18.3 billion, according to publicly available statistics. The average loan size was less than $100,000 and the average business size was 10 employees.
“In eastern Washington, we don’t have big cities and we still have vibrant businesses that are really capable of making our communities wonderful,” Waldref said, “and those are exactly the businesses that don’t have received the funds that would have been so essential to help them survive the pandemic.
Those who suspect COVID-19 relief fraud in Eastern Washington are encouraged to contact the Department of Justice’s National Center for Disaster Fraud hotline at (866) 720-5721, or file a electronic complaint to justice.gov/disaster-fraud/ncdf-disaster-complaint-form.