First U.S. Fraud Charges Over PPP Cash Accuse New Englanders (1)

The Justice Department charged two New England businessmen with fraud over their application for small-business relief loans, the first U.S. criminal action related to the huge federal coronavirus stimulus program.

David Staveley, 52, of Andover, Massachusetts, sought more than $438,000 on the basis of his false claim that he had dozens of employees at three restaurants, prosecutors said Tuesday. David Butziger, 51, of Warwick, Rhode Island, is accused of seeking more than $100,000 for his wireless company to pay employees he didn’t have, according to prosecutors.

The men were charged just weeks into the U.S. government’s effort to provide trillions of dollars in stimulus and relief as coronavirus-related shutdowns have hammered individuals, businesses and markets. With the move, the Justice Department established itself as an initial line of defense in policing the federal funds before the programs’ many official inspectors and watchdogs have started their oversight in earnest.

“These men have earned the distinction of being first in the nation to be charged with allegedly trying to defraud” the coronavirus relief program, said Joe Bonavolonta, the special agent in charge of the FBI’s Boston field office. “We believe both men lied, cheated and carried out this scheme so they could line their pockets at the expense of small businesses that were teetering on the edge of ruin as a result of this crisis.”

The men, who are also accused of conspiring with each other to submit fraudulent applications, never received the money they sought, according to the Justice Department.

Information about lawyers for the men wasn’t immediately available.

Last week, a top Justice Department official said investigators had already seen signs of fraud in one of the federal efforts, the $660 billion Paycheck Protection Program to provide small-business loans that are in many cases forgivable.

Assistant Attorney General Brian Benczkowski, who runs the department’s criminal division, said in an April 30 interview that prosecutors had contacted 15 to 20 of the largest loan processors and the Small Business Administration, which oversees the PPP initiative, as part of an effort to police the trillions of dollars in federal aid being pushed out hastily to blunt the economic impact of the coronavirus pandemic.

Benczkowski said they had seen evidence of applicants overstating their payroll costs or number of employees or misrepresenting the nature of their business. Issues were found in both approved and rejected applications.

“Whenever there’s a trillion dollars out on the street that quickly, the fraudsters are going to come out of the woodwork,” Benczkowski said.

More: Justice Department Sees Early Fraud Signs in SBA Loan Flurry

The Justice’s Department’s interest in the coronavirus stimulus funds comes as criticism mounts over the PPP, which was intended to help small businesses but has also sent multimillion-dollar checks to large, publicly traded corporations. In response, the U.S. Treasury Department has urged large companies to return those funds by May 7 and instead seek cash in the capital markets.

U.S. authorities said in a conference call that they launched their investigation about three weeks ago, in response to a tip from local police that one of the men, Staveley, was posing as his brother in real estate transactions. A search of his email correspondence with Butziger revealed the effort to file the falsified applications for stimulus checks, they said.

While Staveley did own two of the restaurants for which he applied for relief funds, neither was operational and he owned at least one of them in his brother’s name; and the third, Top of the Bay in Warwick, Rhode Island, he didn’t own at all, they said. Staveley claimed in loan applications that he had dozens of employees at the three restaurants, prosecutors said.

“What these men did is wrong and just plain selfish,” said Aaron Weisman, the U.S. attorney for Rhode Island. “It’s unconscionable anyone would steal funds from a program intended to help hard-working Americans.”

Prosecutors said that in a subsequent sting, the other man, Butziger, told an undercover FBI agent posing as a bank compliance officer that he had seven employees including himself on the payroll for his company, Dock Wireless. But the Rhode Island State Department of Revenue told the Internal Revenue Service that it had no records of employee wages having been paid in 2020 by Butziger or Dock Wireless, according to the Justice Department.

Investigators interviewed several supposed Dock Wireless employees who said that they never worked for Butziger or Dock Wireless, prosecutors said.

Staveley and Butziger were charged in federal court in Rhode Island with conspiracy to make false statements and conspiracy to commit bank fraud. Staveley, who prosecutors said also goes by Kurt Sanborn, was also charged with aggravated identity theft, and Butziger was charged with bank fraud. The two were arrested on Tuesday, according to the Justice Department.

Prosecutors cited emails in which they said Staveley and Butziger discussed how to create fraudulent loan applications and provide supporting documentation in order to access Covid-19 relief through the PPP.

(Updates with Treasury Department deadline for public companies to return PPP loans)

To contact the reporters on this story:
Tom Schoenberg in Washington at tschoenberg@bloomberg.net;
Christian Berthelsen in New York at cberthelsen1@bloomberg.net

To contact the editors responsible for this story:
Jeffrey D Grocott at jgrocott2@bloomberg.net

David S. Joachim

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