On May 13, 2020, a Texas engineer was charged with allegedly applying for a bank loan seeking over $10 million dollars in forgivable loans through the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, announces the Department of Justice.
Shashank Rai, a thirty-year-old resident of Beaumont, Texas, allegedly filed for a multi-million-dollar sum in forgivable PPP loans with two banks, claiming that Rai needed the loans to cover the wages of his 250 employees when in reality Rai actually had no employees at all.
Rai faces charges of wire fraud, bank fraud, false statements to a financial institution and false statements to the SBA.
“As alleged, Rai fraudulently pursued millions of dollars in loans intended for legitimate small businesses suffering the economic hardships of the COVID-19 pandemic,” stated Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “The department and our law enforcement partners will remain vigilant in our efforts to protect critical CARES Act relief programs from fraud and abuse.”
“The behavior in this case was very brazen,” announced U.S. Attorney Joseph D. Brown of the Eastern District of Texas. “Those who submit these applications for loans or other assistance need to understand that there are people checking on the representations made, and those representations are made under oath and subject to the penalties of perjury. Federal agencies are watching for fraud, and people who lie and try to cheat the system are going to be caught and prosecuted.”
“To support small and community banks, the Federal Home Loan Banks can accept Paycheck Protection Program (PPP) loans as collateral when making loans to their members,” stated Richard Parker, Acting Deputy Inspector General for Investigations for the Federal Housing Finance Agency, Office of Inspector General. “The Office of Inspector General is proud to work with our partners in law enforcement to prevent, detect, and deter attempts to perpetrate fraud in the Federal Home Loan Bank System and steal the assistance intended for small business owners and employees under this important part of the CARES Act.”
“Today’s charges hold the defendant responsible for his actions to swindle money out of a federal program intended to help those in need during a pandemic crisis,” announced Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation Office of Inspector General (FDIC OIG). “When an individual cheats the Paycheck Protection Program out of money, it deprives hard-working Americans and deserving small businesses. The FDIC OIG is committed to working with our law enforcement partners to investigate financial crimes in order to preserve the integrity of the nation’s banking sector.”
“SBA OIG and its law enforcement partners will aggressively investigate fraud in the Paycheck Protection Program,” announced SBA Inspector General Hannibal “Mike” Ware. “The nation’s small businesses are counting on this program, and we will safeguard it to maintain the public trust. I want to thank the U.S. Attorney’s Office and our law enforcement partners for their dedication and pursuit of justice.”
“While the government is trying to help out small businesses, scammers are out there trying to help themselves,” stated Inspector in Charge Delany De Leon-Colon of the Criminal Investigations Group. “Postal Inspectors are proud to work alongside the Department of Justice and our other law enforcement partners to identify and investigate anyone who capitalizes on this pandemic to commit fraud. The U.S. Postal Inspection Service is committed to protecting small business owners, and the American public, from those who seek to do financial harm.”
According to recently unsealed court documents, Rai allegedly made two fraudulent claims to two separate bank lenders seeking loans guaranteed by the SBA as COVID-19 relief through the PPP.
In the application Rai submitted to the first lender, he allegedly sought an amount of $10 million in a PPP loan by fraudulently stating that he employed 250 workers with an average monthly payroll of $4 million. In the second application, he allegedly sought an additional PPP loan for about $3 million by fraudulently stating that he employed 250 workers with an average monthly payroll of $1.2 million
According to court documents, the Texas Workforce Commission (TWC) informed federal investigators that they had no records of any employee wages being paid in 2020 by Rai or his purported business, “Rai Family LLC.” In addition, the Texas Comptroller’s Office of Public Accounts informed federal investigators that “Rai Family LLC” reported zero revenue in either the fourth quarter of 2019 or the first quarter of 2020.
At the same time, materials recovered from the trash outside of Rai’s home included handwritten notes appearing to outline an investment strategy for the $3 million, which is the exact amount of money he allegedly asked for from the second lender, according to court documents.
Enacted on March 29, 2020, the CARES Act is a federal law designed to provide emergency financial aid to Americans suffering the economic hardships caused by the COVID-19 pandemic. One source of that aid was providing up to $349 billion in forgivable loans to small businesses through the PPP that would help with job retention and other expenses. Congress authorized over an additional $300 billion in PPP funding in April 2020.
The PPP makes loans with a maturity of two years and an interest rate of 1 percent to qualifying small-businesses and other organizations. Businesses must use PPP loan proceeds on payroll costs, interest on mortgages, rent, and utilities. If businesses spend the PPP loan proceeds on these listed expenses in eight weeks of receipt and spend at least 75 percent of the forgiven amount on payroll, then the PPP will let the interest and principal be forgiven.
If you, friends, coworkers, or a family member see any suspicious fraud related to COVID-19 involving
- PPP loans applications,
- Receipt of federal benefits under the CARES Act, or
- Related to receipt of any other benefits under a government benefits program,
Please visit the website of the Department of Justice, federal investigators, or local law enforcement to report the activity and obtain more information. Be safe.