With the arrest of the CEO of a New Jersey non-bank lender, the US Department of Justice appears to have entered a new, more aggressive phase in its review of COVID-19 aid and alleged fraud in the administration of the Paycheck Protection Program. (PPA) .
Rafael Martinez is accused of using falsified documents to obtain approval from the United States Small Business Administration (SBA) for his company, MBE Capital Partners LLC, to issue PPP loans as a non-bank lender. The government says MBE earned over $70 million in loan fees.
The charges against Martinez — the first against a lender — follow President Biden’s announcement in his State of the Union address that prosecuting PPP fraud is a priority of his administration.
The extension of DOJ prosecutions to lenders should serve as a warning to businesses and individuals that the government is focused on investigating and prosecuting any fraud related to COVID-19 aid.
The CARES Act
The CARES Act (Coronavirus Aid, Relief and Economic Security Act) was designed to provide emergency financial assistance to those suffering economic loss and uncertainty due to the COVID-19 pandemic.
Signed into law in March 2020 and later reauthorized to create a second drawdown loan program, the CARES Act included $2.8 trillion in economic relief for individuals and businesses and provided access through the SBA to forgivable loans. to cover payroll and other expenses specified through the PPP.
Biden warns of ‘watch dogs’
As the government continues to expand the scope of its P3 investigations, all signs point to one of the most expansive white-collar criminal investigations in US history.
In his State of the Union address, President Biden pledged to appoint a chief prosecutor to fight financial crimes related to the CARES Act. The move comes as the US Department of Justice pursues cases across the country alleging borrowers falsified documents to obtain forgivable small business loans. President Biden has warned that “watchdogs” will pursue suspected criminals who have wrongfully taken advantage of the CARES Act.
Pursuit of the first lender
According to a DOJ press release, Martinez was arrested on multiple charges of fraud and aggravated identity theft in connection with loan and lender applications submitted through the SBA-administered PPP. Martinez allegedly used false statements and documents to fraudulently obtain SBA approval for his company to be a non-bank lender, then used that approval to obtain approximately $932 million in capital to issue PPP loans and earn more than $71 million in lender fees. .
Prosecutors also alleged that Martinez engaged in a scheme to obtain a PPP loan for MBE in the amount of approximately $283,764 through misrepresentations regarding the number of MBE employees and salaries paid. to MBE employees and using the false signature of MBE’s tax preparer. Martinez allegedly spent the proceeds of his scheme to buy a villa in the Dominican Republic for more than $10 million, a $3.5 mansion in Franklin Lakes, NJ, a charter plane service and several luxury vehicles.
Potential consequences
Martinez was charged with one count of bank fraud, two counts of wire fraud, and one count of making false statements to a bank, each carrying a maximum sentence of 30 years in prison; one count of false statements, which carries a maximum sentence of two years in prison; one count of making false statements to the SBA, which carries a maximum sentence of two years in prison; and one count of aggravated impersonation, which carries a mandatory minimum sentence of two years in prison, which must be served consecutively to any other sentence imposed.
Any individual or business owner concerned about compliance with the CARES Act or potential exposure to fraud allegations related to COVID-19 should seek legal counsel immediately and not wait to be contacted by law enforcement. . Individuals who have already received a subpoena or investigation from a law enforcement agency should immediately consult with an attorney to assess the full potential for civil and civil and criminal exposure before responding.
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