Labor & Employment Law Daily Texas engineer charged with fraudulently seeking $13M in PPP loans
Tuesday, May 19, 2020

Texas engineer charged with fraudulently seeking $13M in PPP loans

By WK Editorial Staff

Although he allegedly claimed to have 250 employees in two separate loan applications, there are purportedly no Texas Workforce Commission records showing any employee wages were paid.

On May 13, the Justice Department announced that prosecutors in the Eastern District of Texas have charged an engineer with filing bank loan applications fraudulently seeking more than $10 million dollars in forgivable loans guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The 30-year-old Beaumont, Texas, man is charged in a federal criminal complaint with violations of wire fraud, bank fraud, false statements to a financial institution, and false statements to the SBA, the DOJ said. He allegedly sought millions of dollars in forgivable loans guaranteed by the SBA from two different banks by claiming to have 250 employees earning wages when, in fact, no employees worked for his purported business.

PPP program. The CARES Act is designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic. Among other things, the CARES Act authorizes up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses, through the Payroll Protection Program (PPP). In April 2020, Congress authorized more than $300 billion in additional PPP funding.

The PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent. PPP loan proceeds must be used by businesses on payroll costs, interest on mortgages, rent, and utilities. The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within eight weeks of receipt and use at least 75 percent of the forgiven amount for payroll.

PPP scheme. According to court documents, the engineer allegedly made two fraudulent claims to two different lenders for loans guaranteed under the PPP. In his application to the first lender, he allegedly sought $10 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of $4 million. In his second application, the engineer allegedly sought about $3 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of about $1.2 million.

But the Texas Workforce Commission reportedly had no records of employee wages having been paid in 2020 by the engineer or his purported business, Rai Family LLC. The Texas Comptroller’s Office of Public Accounts also reported to investigators that Rai Family LLC reported no revenues for the fourth quarter of 2019 or the first quarter of 2020.

Court documents also indicated that materials recovered from the trash outside of the engineer’s residence included handwritten notes that appear to reflect an investment strategy for the $3 million, which is the amount of money that he allegedly sought from the second lender.

As the DOJ noted, a federal criminal complaint is merely an accusation; defendants are presumed innocent unless and until proven guilty.

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