Prosecuting Pandemic-Related Fraud A Daunting Task For U.S., NC
This story originally was published by Carolina Public Press.
A Charlotte resident faces a federal indictment on a charge of fraudulently receiving more than $200,000 in COVID-19 related unemployment benefits by filing claims in North Carolina and six other states using more than 35 stolen identities.
Keon I. Taylor faces additional charges of applying for Economic Injury Disaster Loans using false information, including a stolen identity.
Taylor’s indictment results from one of hundreds of federal investigations across the country tied to alleged fraud and criminal schemes related to pandemic relief under the Coronavirus Aid, Relief and Economic Security, or CARES, Act. The U.S. Department of Justice announced in March that it had charged 474 defendants with pandemic-related fraud.
In May, U.S. Attorney General Merrick B. Garland established the COVID-19 Fraud Enforcement Task Force, composed of more than a dozen federal agencies, including the Department of Justice, Department of Labor Office of Inspector General, Office of Inspector General from the Small Business Administration and the Pandemic Response Accountability Committee.
An Overwhelmed Agency
From March 2020 to April 2021, the Small Business Administration Office of Inspector General Hotline reported receiving a record-breaking 150,000 complaints related to loan fraud.
The office serves as a watchdog organization for the SBA. In contrast, the hotline received 742 complaints in 2019.
Since April, the organization has received about 10,000 additional complaints, a spokesperson for the SBAOIG said.
Fraud detection began early in the initial rounds of loans, the spokesperson said. By May 2020, the organization had already begun pressing charges of suspected fraud. Typically, fraud doesn’t emerge until a year after a loan is made, but recipients began to default on PPP and EIDL loans within a month, suggesting potential fraud.
The House Select Subcommittee on the Coronavirus Crisis issued a memo in March 2021 with key findings on the fraud: The U.S. Treasury Department doled out about $79 billion in potentially fraudulent EIDL loans and advances. Paycheck Protection Program lenders provided another potentially fraudulent $4 billion.
As of March, the Department of Justice had recovered $626 million, or less than 1%, of the total $84 billion in potentially fraudulent loans.
In an October 2020 report, the OIG found indicators of “widespread potential abuse and fraud in the PPP. Since the PPP began, OIG has had a major increase in reports of suspected fraud.”
Some of the indicators included accounts established using stolen identities, inflation of payroll, businesses created after PPP was in effect and fraudulent supporting documents, such as payroll and tax forms.
The CARES Act requires that businesses must have been in operation before Feb. 15, 2020, to be eligible for a PPP loan. Thousands of businesses obtained PPP loans despite having been created after the deadline, making them ineligible.
NC Seizes More Than $3 Million
Across North Carolina, federal grand juries have indicted 19 people on PPP, EIDL and unemployment claims fraud charges. Thirteen of those indictments come from the Western District, which includes cities like Asheville and Charlotte, five from the Middle District, and one in the Eastern District.
So far, the Western District has seized $3.8 million from bank accounts or federal forfeiture — the seizing of a person’s assets. The Middle District has recovered $402,000 from PPP fraud and $414,000 from EIDL fraud. The Eastern District had recovered “some” amount but did not provide an exact number.
Identity theft presents a distinct set of problems for the victims, said Jenny Sugar, assistant U.S. attorney for the Western District of North Carolina. After a victim’s personal information is stolen, very little can be done to recover that information.
“Unfortunately, with the way the internet works and the way people’s data is kept, someone could use stolen data today, and they could use it again, a year down the road for something else,” Sugar said.
Sugar has seen a trend of already-established identity thieves transitioning into unemployment fraud. In one case, Jamel Johnson pleaded guilty to federal charges for his role in two separate schemes involving identity theft.
In 2019, he stole victims’ identities on the internet and used them to obtain more than $1 million in fraudulent bank loans. Shortly after unemployment benefits were announced in 2020, those stolen identities were then used to receive almost $200,000 in unemployment benefits.
The N.C. Division of Employment Security, which oversees unemployment benefits, is taking steps to strengthen its security measures, said DES spokesperson Kerry McComber.
Multifactor authentication, reCAPTCHA and a verification service, ID.me, are being implemented, she said.
To detect fraud targeting North Carolina perpetrated from outside the state, DES staff is participating in a multistate data hub with information about known and potentially fraudulent unemployment claims.
In addition, the National Directory of New Hires and the Wage Crossmatch program will provide information on unemployment claims to detect duplicate filings and potential fraud.
DES has more than tripled its staff to prevent and detect fraudulent claims.
“I think that we are going to be investigating these cases for years to come,” Sugar said.
“But we’re likely just scratching the surface. I think there’s going to be a lot more fraud uncovered as before.”
Carolina Public Press is an independent, in-depth and investigative nonprofit news service for North Carolina.