On March 27, 2020, in response to the COVID-19 pandemic, Congress acted swiftly in enacting the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, designed primarily to provide emergency financial assistance to millions of Americans suffering the economic effects caused by the COVID-19 pandemic. Spanning over 300 pages, the bulk of the Act addresses economic relief and stimulus, with only two pages devoted to COVID-19 testing.
The Act’s Payroll Protection Program (“PPP”) provided loans targeted to small businesses to help keep their workers employed during the COVID-19 pandemic, and offered loan forgiveness to borrowers maintaining a high percentage of employees on payroll. Specifically, PPP provided funding to businesses through loans for payroll costs, interest on mortgages, rent and utilities. PPP allowed the interest and principal on loans to be forgiven if the business spent proceeds on certain expense items within a designated time and used a certain percentage of the loan on payroll expenses. Similar to other economic and healthcare related legislation, PPP has been the subject of various schemes by individuals seeking to defraud the federal government.
According to the U.S. Department of Justice, on June 9, 2021, former NFL player Joshua Bellamy pleaded guilty to conspiracy to commit wire fraud for submitting falsified documents and falsified information to obtain a $1.2 million PPP loan for his company, Drip Entertainment, LLC. Much like other schemes, Bellamy paid a kickback in the amount of $311,000 to an alleged co-conspirator for his assistance in preparing and submitting the falsified applications. As part of the plea, Bellamy admitted to using the PPP loans on personal items, such as jewelry.
On Dec. 10, 2021, Bellamy was sentenced to 37 months in federal prison for fraudulently obtaining over $1.2 million in PPP loans through the CARES Act in connection with his plea. In addition to his prison sentence, Bellamy was ordered to serve three years of supervised release and pay over $1.2 million in both restitution and forfeiture.
According to the Department of Justice, since the inception of the CARES Act, the Fraud Section has prosecuted over 150 defendants in more than 95 criminal cases, similar to the scheme discussed herein. Those prosecutions have led to the recoupment of over $75 million in cash proceeds derived from fraudulent PPP funds, along with the seizure of numerous real estate holdings and luxury items purchased with these fraudulent funds. As we continue to navigate through the pandemic, those numbers are sure to balloon as more investigations shed light on the propriety of these PPP applications.
Related: Former NBA Players Charged with Defrauding League’s Health Plan