As many businesses and individuals are aware, the government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) last year to counter the economic effects of the COVID-19 pandemic. Part of the CARES Act is the Paycheck Protection Program (“PPP”), which provides hundreds of billions of dollars in forgivable PPP loans to small businesses. With over $800 billion in COVID-19 relief funds authorized, CG attorneys cautioned that government scrutiny and enforcement efforts would increase and warned potential recipients of PPP funds to be cautious while applying for PPP loans.
Less than a year after the enactment of the CARES Act, the government enforcement efforts are on full display. On January 21, 2021, The U.S. Department of Justice (“DOJ”) announced the guilty plea of a Washington man who admitted to fraudulently obtaining COVID-19 relief funds. According to the press release, Austin Hsu pled guilty to wire fraud. Mr. Hsu admitted that he submitted nine fraudulent disaster loan applications seeking over $1 million. Six of the nine fraudulent applications were approved, and he received more than $700,000 in relief funds.
Mr. Hsu admitted that he applied for PPP loans using the names of current and former employees of a company he owned, Blackrock Services P.S., on the applications related to four other companies he owned. As part of the scheme, Mr. Hsu submitted false federal tax records. Mr. Hsu also received an Economic Injury Disaster Loan (“EIDL”) and PPP funds for Blackrock Services. In addition to the Blackrock Services scheme, Mr. Hsu also created a separate company, Blueline Capital, LLC, in June 2020. He used Blueline Capital to apply for an EIDL loan one month after establishing the company. Mr. Hsu admitted that Blueline Capital had no operations or business. However, he misrepresented to the SBA that Blueline Capital had been in business since 2017, had nine employees, and gross receipts of over $1.5 million. Mr. Hsu is scheduled for sentencing on April 19, 2021.
CG attorneys have monitored and written about government enforcement efforts related to COVID-19 relief funds, including the first federal prosecution for PPP loan fraud and Attorney General Bill Bar’s instruction to the DOJ to focus on pandemic-related fraud. Recently, CG attorneys wrote about the first civil settlement to resolve allegations related to PPP loan fraud. Mr. Hsu’s guilty plea serves as a reminder that the government’s enforcement efforts and focus on fraud related to COVID-19 relief are here to stay.
Businesses and individuals making submissions or statements to the federal government, particularly to obtain government funds, face potential serious criminal, civil, and administrative liability for any misrepresentations or false statements. Applicants for government funds, including COVID-19 relief funds, should review the certifications and representations carefully and maintain sufficient documentation demonstrating compliance with the respective program in case of an audit or investigation. For an overview of some of the CARES Act compliance requirements (current as of June 2020), you can watch Chilivis Grubman’s free webinar titled CARES Act Provider Relief Fund — Ensuring Compliance and Avoiding Liability.
The attorneys at Chilivis Grubman regularly represent businesses and individuals in connection with government investigations and audits. If you are in need of such services, please contact us today.