Claims of fraud surround COVID-19 relief payouts

Lawyer in US calls government's program a 'honey trap'

The United States government was sending out money to help people and companies dealing with economic hardships in 2020 and 2021 caused by the COVID-19 pandemic, but the funds became a target for fraudsters in the country.

The US government has issued $5 trillion－$3.1 trillion by the Trump administration and $1.9 trillion under the Biden administration－to help the country respond to the pandemic.

The Office of Inspector General, or OIG, at the Labor Department said that it has received more than 144,000 unemployment insurance-related complaints and opened more than 39,000 investigations. The OIG opened an average of about 120 cases a year pre-pandemic.

The OIG estimated that more than 18.7 percent of pandemic unemployment insurance payments were "improper". With a total of $872.5 billion in pandemic unemployment insurance payments, that means roughly $163 billion may have been paid improperly.

As of June, the Labor Department has sought 875 unemployment insurance fraud-related indictments and recovered more than $850 million. Department officials said some small-dollar thefts may never be prosecuted.

Ashwin Ram, a lawyer for a convicted client, called the government's COVID-19 relief program a "honey trap", The New York Times reported.

An inspection of the Small Business Administration by the OIG discovered that one bank account received 38 loans totaling almost $5 million. Another physical address received 97 loans totaling $1.37 million.

The Paycheck Protection Program package totaled $739 billion at the Small Business Administration. An analysis by three researchers from the University of Texas at Austin concluded that 1.41 million loans with a balance of $64.2 billion were potentially fraudulent. The researchers said that a supplemental analysis indicated that the amount of likely fraudulent loans may be twice as large.

Konstantinos Zarkadas, a Long Island, New York, physician, was able to apply with false information and easily receive 11 Paycheck Protection Program and Economic Injury Disaster Loan Program loans totaling approximately $3.7 million from March to July 2020, according to a release by the US Justice Department.

Zarkadas spent part of the money to buy himself a $1.7 million yacht and expensive watches. He pleaded guilty to disaster relief fraud and wire fraud in connection with his receipt of millions of dollars in small business loans under the Paycheck Protection Program and Economic Injury Disaster Loan Program, the Justice Department said.

He was sentenced to 51 months in prison in March and ordered to pay $3.5 million in restitution, the release added.

"The defendant, a medical professional, admits to diverting millions of dollars in COVID-19 disaster relief funds to finance an extravagant lifestyle, including the purchase of luxury watches and vehicles, and the down payment on a yacht," Breon Peace, US attorney for the Eastern District of New York, said in the same Justice Department news release.

In a separate case, the Justice Department said a New York man was able to obtain $7.2 million in Paycheck Protection Program loans by forging W-2 forms and tax returns. The money was used to buy luxury cars including a Lincoln Navigator, a Maserati and a Mercedes-Benz, and a mansion of more than 12,000 square feet in Florida.

The Justice Department said in a release on its website that the man, who was extradited from Croatia, is facing charges of wire fraud, aggravated identity theft and illegal monetary transactions. After an initial appearance in court on the charges on April 29, the man was ordered detained pending trial, the release said.

"Financial fraud targeting COVID relief funds is a serious crime," US Attorney Roger B. Handberg said in the release. "Our successful extradition of this defendant from Croatia back to Orlando, Florida, shows that we and our law enforcement partners will pursue every lawful avenue to locate and prosecute those engaged in such fraud."

James Stote and Phillip Augustin, two Florida men, first obtained Paycheck Protection Program loans with falsified documents for Augustin's company. They filed a total of 79 applications and obtained $35 million, the US Justice Department said in a separate release.

Both pleaded guilty to conspiracy to commit wire fraud, the Justice Department said.

Stote was sentenced to 10 years in prison and Augustin was sentenced to six and a half years.

mayzhou@chinadailyusa.com