On Tuesday, May 5, the Department of Justice (DOJ) filed charges in the federal District Court of Rhode Island against David A. Staveley and David Butziger for conspiracy to make a false statement and conspiracy to commit bank fraud in connection with loan applications made under the federal government’s Payroll Protection Program (PPP). The Complaint alleges that Staveley of Andover, Massachusetts, and Butziger of Warwick, Rhode Island, misrepresented that they were seeking to use over $500,000 in PPP loans to pay wages to dozens of employees at four different business entities. After an investigation, federal authorities discovered Staveley’s and Butziger’s loan applications were a sham.
The Justice Department claims that the four business entities involved in the conspiracy were either not operating before the start of the coronavirus pandemic, did not have salaried workers, or had no affiliation with the two individuals who were seeking the loans. For example, one of Staveley’s businesses for which he sought a PPP loan – a restaurant in Massachusetts – closed in early March, before the stay-at-home orders came into effect and after the restaurant’s liquor license was revoked. Butziger claimed that he was seeking a PPP loan to pay his seven full-time employees in both a submitted bank application and to an FBI agent posing as a bank compliance officer. In addition to the conspiracy charges, Staveley is charged with aggravated identity theft for using his brother’s identity in various real estate transactions, and Butziger is charged with bank fraud.
While Staveley and Butziger are the first individuals to be charged with fraud in connection with the PPP, their cases present insight into what future DOJ criminal actions related to the program might look like. Many companies that originally applied for PPP loans are actively considering whether to return the funds ahead of a now-extended deadline of May 14. Most companies that have complied in good faith with the required certifications face a relatively low risk of criminal liability. For these companies and their executives, civil liability and government audits are a more realistic concern (as many are aware, Treasury Secretary Steve Mnuchin stated last week that the federal government would audit every company receiving more than $2 million under the PPP). However, this case demonstrates that outright fraud will be quickly prosecuted and is a good example of the type of fraud that the DOJ is likely interested in pursuing. Brian Benczkowski of the DOJ reported that the Criminal Division has already received a number of leads across the country, and will continue to pursue fraudsters seeking to utilize the pandemic as an opportunity.
A recent Foley Hoag webinar on PPP liability risks and compliance tips can be found here.