Oh My Fraud

OMF - Too Pandemic, Too PPP Fraud

Caleb: [00:00:00] So, Greg, do you remember episode 13 of our illustrious podcast? Do you remember? This was about July 2020. Does that ring a bell?

Greg: [00:00:09] Was that the episode we did about the Ivana Trump funeral? Right. That that was July 20th, 22. Did we did we do it? Did we do an episode about that? Yeah, it was the Ivana Trump funeral fraud, did we not? Is that not. Wait, was.

Caleb: [00:00:23] The funeral of fraud or was the the the death of fraud?

Greg: [00:00:27] You know, you just kind of assume if Trump's involved, there's also fraud involved. So I thought, did we maybe am I.

Caleb: [00:00:34] Yeah. Wrong. Wrong.

Greg: [00:00:36] Not remembering that wasn't that wasn't it.

Caleb: [00:00:39] I look I look forward to recording that episode with you, though.

Greg: [00:00:42] Okay? No, but.

Caleb: [00:00:43] Not quite right. I have it here. No. Episode 13 is called a plethora of pandemic fraud, and the alliteration is intentional because I hate alliteration. However, it's nearly a year later. And we're back with a follow up episode on PPE fraud. Because honestly, there's so much goddamn PPE fraud, it just seemed like the right thing to do.

Blake: [00:01:14] If you'd like to earn CPE credit for listening to this episode, visit Earmark Cpcomm. Download the app, take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now on to the episode.

Caleb: [00:01:33] This is Oh My Fraud, a true crime podcast where our criminals drive Lamborghinis instead of windowless vans. I'm Caleb Newquist.

Greg: [00:01:40] And I'm Greg Kyte.

Caleb: [00:01:42] Greg, in our previous fraud episode, we did, if I may say so, myself, we did an exceptional job of explaining the Paycheck Protection Program.

Greg: [00:01:54] Yeah, I'm not going to disagree with you on that, Caleb. We did do an exceptional job and.

Caleb: [00:02:00] We actually discussed a couple of pretty spectacular frauds, did we not?

Greg: [00:02:05] Yeah, absolutely. I mean, do we cover any other kind of fraud other than the spectacular type on. Oh, my fraud.

Caleb: [00:02:12] Good point. You are. You're absolutely That's that's. We only do spectacular. That's our.

Greg: [00:02:17] Brand. That's right. And if anyone listening doesn't know anything at all about the Paycheck Protection program or the spectacular frauds we talked about, first off, your head has been buried in the sand. And second of all, you should go back and listen to that episode. Well, we have a link in the show notes to make it extra easy for you.

Caleb: [00:02:37] Yeah. But. What I will just reiterate here. Reiterate, reiterate. That's what I'll do. I will reiterate you should.

Greg: [00:02:47] Iterate it again that.

Caleb: [00:02:49] There was a lot of fraud in the paycheck protection program. We mentioned it in the previous episode, but we'll mention it now. One study ballparked it around $64 billion. Which so much.

Greg: [00:03:03] Billions.

Caleb: [00:03:04] Lots of billions. Now, the Small Business Administration, that's the government agency that administered the program, they dispute that figure.

Greg: [00:03:12] But and of course they will, right?

Caleb: [00:03:15] Yeah.

Greg: [00:03:16] They'll be like, oh, you mean the the thing we oversaw 64 billion. That's way it was. That's way overblown. You're overblown. We're way better at our job than that. No.

Caleb: [00:03:24] What's fantastic, though is that agency's inspector general. Right. So if you're not familiar with how kind of federal government agencies work. They all have like an inspector general, which is effectively their schoolmarm.

Greg: [00:03:38] Yeah, right. It's kind of internal audit, I'd say. It's. Yeah, very much akin to governmental internal audit.

Caleb: [00:03:44] Well, well said, Greg. Anyway, the inspector general for the SBA estimated that 70,000 loans were potentially fraudulent.

Greg: [00:03:54] And that's also a lot staggering.

Caleb: [00:03:57] Yeah. So, Greg, can you think of anything? And by anything, I mean, I'm talking about frauds here that comes close to this in terms of size and scope.

Greg: [00:04:07] Well, a quick Google search will confirm for you, like it did for me, that Bernie Madoff was the largest single fraud in US history. And like we're saying here, we're talking about at least, well, estimated 70,000 different frauds. But in that one single fraud he had. Right. About 37,000 victims who collectively lost and this is a quote, the victims lost, quote, as much as $20 billion in cash losses and $65 billion in paper losses. So anyways, that being said, PGP fraud. Basically, if the $64 billion estimate in the study you quoted is correct, then that's just a 1 billion less than the biggest single fraud in US history. So and that's what's crazy is that if the if the losses on PGP fraud basically equal the the losses from the Madoff fraud. But everybody knows who Bernie Madoff is and what happened and there's the PGP fraud just isn't getting the same kind of splash. Right.

Caleb: [00:05:16] So it's been a while since the loan has has ended. And so there's been some lots of there's been lots of studies and lots of reporting around it. And a and a January 2023 article from NPR. Npr did an analysis of of Small Business Administration data, and they found that 92% of the loans issued have been granted full or partial forgiveness. So mostly free money? Yep. It was the vast majority of which the vast.

Greg: [00:05:44] Majority.

Caleb: [00:05:45] Ended up being free money. Okay. Yep. Back to the fraud. One study estimated that 15% of loans could be fraudulent about 1.8 million loans for a total of 76 billion. So we've seen 64 billion. We've seen 76 billion. That's I don't know if that's technically a margin of error of $12 billion, but it's a big difference. And who knows where the $12 billion went? Greg, you didn't get it? I didn't get it. No. But the authors of this particular study that I'm citing and again, it's we we either have them in this show notes or the previous episode show notes. They they they call that a conservative estimate.

Greg: [00:06:23] Yeah. Which is that's insane. And I yeah, and it's hard for me to even have much of an opinion about it, whether that's conservative or liberal in terms of that estimate. Right. So it I mean, my gut wants to say that that I would expect better from the general population than 15% of, of what, $800 billion program, that 15% of that was stolen. Yeah. That that that bothers me. So and I want to say, I want to believe that humans are better than that. Yes. Yeah, but maybe I'm wrong.

Caleb: [00:07:04] I think you are.

Greg: [00:07:05] I think that's why we the fact that humans aren't better than that. That's why we have a podcast, I guess.

Caleb: [00:07:10] Yeah, I think you're right. I think you're right. Yep. According to the Department of Justice, since the inception of the CARES Act through February 2023, over 200 defendants in more than 130 criminal cases have been prosecuted and over 78 million in cash. Proceeds derived from fraudulently obtained PGP funds have been seized, as well as numerous real estate properties and luxury items purchased with such proceeds. Now, we don't know about the real property, but yeah, $78 million. I would gladly split that with you. Greg Yeah, if we had $78 million. But when you compare 78 million to roughly 60 or 70 billion, right? It's practically nothing.

Greg: [00:07:48] Yeah, it's, it's basically 1/1000 of the conservative estimate of what was lost. 1/1000 of that has been recovered. Yeah.

Caleb: [00:08:01] So not.

Greg: [00:08:03] No, No.

Caleb: [00:08:05] Okay. So with all that background. Let's get into a few more cases of PGP fraud.

Greg: [00:08:19] All right, Caleb, let's begin with the case of Randy Frassinelli, age 65, of Carnegie, Pennsylvania. And according to The New York Times article, Randy quote began his efforts in May of 2020 when he began filing for loan applications for the Paycheck Protection Program to help his four companies named Grant Williams Associates. Grant Williams Global. Grant. Williams International and Grant Williams Associates Corporation. So he had a he was very creative with how he named his companies, just.

Caleb: [00:08:54] Not even trying that.

Greg: [00:08:56] Well, and also so not creative. And so just I mean all of these just sound like shell companies to me. You know, if it was Grant Grant Williams Heavy Industries Holding Inc., that would that would fit right in there.

Caleb: [00:09:10] Right. Or just like. Like you know how in the old days, businesses used to be named like, very kind of they had vague names like even even the General Electric Company.

Greg: [00:09:20] You're like, oh, right, right. Or it's.

Caleb: [00:09:22] Like us.

Greg: [00:09:23] Steel.

Caleb: [00:09:24] And like, he could have he could have done that. He could have said, Grant Williams. I don't know. Like.

Greg: [00:09:31] Right, General? Well, I always like holdings. Whenever somebody just puts, puts a holdings in there, it's like, yeah, we're just this is just here. It's, we're just saying it's a shell company, it's.

Caleb: [00:09:41] Holdings, it's, it's holding. It's the job of the purpose of this business is holding.

Greg: [00:09:46] It's holding things. It's like, it's like glue. The Times article goes on to report that Randy described himself on his LinkedIn profile as a high level technology advisor for advanced technology companies on a global basis, working on the development and release of classified technology products that are developed and sold to major defense contractors and the Defense Department in the US, UK, Israel and other friendly countries across the globe. So despite the fact that not.

Caleb: [00:10:18] Dick, not Dick country, but the friendly one.

Greg: [00:10:21] Right, right. Exactly. Because the US has.

Caleb: [00:10:25] Got such a good track record on people.

Greg: [00:10:28] Right? I think he was like saying not North Korea. Listen, we're not we're not we're not crazy. Exactly. I'm not an idiot. But but but so so his that was his own description of what he does. And despite the fact that it it's it's rather meaningless and also highly suspicious. And in response to these loans, the two banks to which Mr. Frassinelli applied for loans, they gave him combined approximately $2.5 million. So they're fantastic. They were just like, Yeah, here's the money. Go here. Here you.

Caleb: [00:11:07] Go. Grant Williams Associates. Grant Williams Global. Grant Williams International, Right.

Greg: [00:11:12] Yeah. The Grant Williams Quadruplets. Here's here's your here's your 2.5 million bucks. Go and save your businesses with with.

Caleb: [00:11:21] Friendly countries, Of course.

Greg: [00:11:22] With friendly countries. Exactly. So here's here's a here's a great I love this timeline of of what unfolds from this point on. So so here's here's what happens. And like we said, just to just to ground us again, he began his efforts in May of 2020. On February 4th, 2021, authorities searched Randy's home and seized four bank accounts that he had put on his applications for these loans. Then on March 2nd, 2021, less than a month later, the dude applies for another loan. Awesome. On March 13th, 11 days after that, he's approved for that fifth loan for and given another $1.3 million after the authorities already seized a bunch of his bank accounts. Then on April 14th, which is basically one month later, another month later, Randy is arrested and charged with bank fraud and money laundering, and he's released on bond. And this bond, which is so ridiculous, the bond includes a condition that he, quote, not commit any federal, state or local crimes. Is does that is it it's.

Caleb: [00:12:35] Not a big ask if you're being let go on bond. Right.

Greg: [00:12:38] It seems like no, I think all of us. Live under the conditions to not commit any federal state. It's like if you commit a crime, we're going to take you to jail. Yeah, no shit you're going to do anyways. Then May 21st, barely a month after that, the dude applies for another loan, this time for a little bit over a half a million bucks. So the guy just wants all the money and doesn't. Doesn't care. He has. He has zero cares of all that. Like as as the walls are crumbling around him, he's just going and applying for more loans. So investigators.

Caleb: [00:13:20] It is a it is a very straightforward application, Greg. Like what?

Greg: [00:13:23] Right. Well, I guess. Well, and we'll get to that how straightforward it is at the end of the podcast. But here's here's the deal. Investigators learned that he'd applied for the sixth loan, the one for about a half a million bucks. They they learned that he applied for that loan about a month later when they searched open source data on the SBA's website. And the loan had been tentatively approved. And because of that, because he'd applied for this last loan, he was then arrested again because he had broken the conditions of his bond to not to commit federal crimes. So they arrested him and charged him. He just they just tacked on another count of bank fraud on along with the other frauds that he had already been charged with.

Caleb: [00:14:12] This might be my favorite PGP fraud so far.

Greg: [00:14:17] Absolutely. Like, I've read.

Caleb: [00:14:19] A lot of fraud stories, but. Right. I mean, this one's pretty good. Pretty good.

Greg: [00:14:26] What's a good. It's like, you know, you're. You're being arrested for shoplifting and. And you steal the pen off the judge's desk. Yeah. As at the court, at the courtroom. And it's like, okay, you've got there's something, something, something wrong with you at that point. According to the Justice Department press release, Ravanelli spent the money on luxury items, including vehicles a villa in Mexico, an African safari, firearms works of art, precious metals, watches and personal investments, which I think we would all say very respectable loot for like a gym, bro. I'm going to say for like a guy who who likes to blast his his glutes on leg day.

Caleb: [00:15:17] Always, always the watches. Have you noticed.

Greg: [00:15:19] That? Yeah. Watches, watches, watches. But but also, you know, the firearms seem that that that kind of stood out to me. But then you remember his LinkedIn profile. The dude's an arms dealer, so it seems like that's maybe just building his. Oh, is that.

Caleb: [00:15:34] Was that the subtext that he got from that? Yeah, it was arms dealer.

Greg: [00:15:39] Yeah. Well, it's just like, you know, you can't you got to be true to your calling if you're an arms dealer. If you don't, if you're an arms dealer and you don't own an automatic weapon or several, then I'm not. I don't believe you're an arms dealer. Yeah.

Caleb: [00:15:56] Stand behind your product.

Greg: [00:15:57] Exactly. Believe in what you do. So then, August 16th, 2022, Randy Frassinelli pleaded guilty to charges of bank fraud and money laundering. But listen, my favorite part comes next because according to the Department of Justice press release released prior to sentencing in March of 2023, Randy Frassinelli submitted at least 13 forged character letters purportedly from prominent individuals in politics, finance, business, technology and even charitable organizations in an attempt to receive a more lenient sentence. Brilliant. Awesome. Yeah. Really?

Caleb: [00:16:41] I have to confess, I did not get a chance to. To look up the court filings because I was curious that maybe they mentioned who these forged character letters were from. Right. But. But I didn't get there. But in my mind, I'm thinking like, I'm thinking, oh, Warren Buffett, right? Like he got one. He got one. He got one from Warren Buffett.

Greg: [00:17:02] Bill Clinton. Bill Gates. Yeah. Mother Teresa. They're all they can all vouch for me.

Caleb: [00:17:08] The late. The late Mother Teresa.

Greg: [00:17:10] Yeah. Yeah, she she, she wrote this letter, you know, before she. Before she passed. Just because she knew I might need it. United States District Judge W Scott Hardy was not impressed by the forged letter and sentenced Randy to letters. Letters.

Caleb: [00:17:29] Greg Not just one.

Greg: [00:17:31] Right? Did I? Did I not?

Caleb: [00:17:32] Baker's dozen? No. You said letter. Oh, there's a baker's dozen of forged letters, so.

Greg: [00:17:38] Yeah, well, you know, he wasn't. There wasn't. What I'm trying to underscore, he wasn't impressed with even a one of them. And he and he sent Randy to 78 months in prison.

Caleb: [00:17:51] In November 2027 people across two states were charged in a scheme that involved filing 80 falsified applications for $16 million. That is not a bad figure as far as a single fraud goes.

Greg: [00:18:07] No, that's a that's a lot.

Caleb: [00:18:09] And like, how many people did I say it was? Seven people. I mean, that's a that's a good size conspiracy. Like, I don't know about you, but people entering a conspiracy with more than one other person. Those are some balls, my friend. Yeah. Someone is going to talk. I know. Like, it's only. It's only a matter of time. If we've learned anything from anything, conspiracies will fucking implode.

Greg: [00:18:36] Implode. They will absolutely implode with the even.

Caleb: [00:18:39] Even the mafia, right? Yeah. You think about the mafia and take your pick. You know, take. Take your. Take your particular flavor of organized crime. They'll kill you if you talk. And it still doesn't stop people from talking.

Greg: [00:18:55] Exactly. Well, and the other thing you got to realize is the whole we've harped on the effectiveness of separation of duties as a internal control. That whole internal control is based on the presumption that that that a group of people will not want to commit fraud together. That's the whole that's the whole point of that. So yeah, it's a it's a pretty, pretty decent side. It's a Yeah. Seven is a lot of conspirators.

Caleb: [00:19:28] That's a, that's a good size accounting department.

Greg: [00:19:30] Very healthy.

Caleb: [00:19:31] Yeah. Okay. All seven were charged with conspiracy to commit wire fraud and wire fraud. Our our favorite kind of fraud. Yep. Two of them were also charged with money laundering. In the Department of Justice press release announcing the charges. There are a lot of quotes and this is I had to point this out, but I count one from the acting assistant attorney general, one from the US Attorney, along with quotes from special agents from the Inspector General's offices of the Small Business Administration, Homeland Security Investigations, Federal Housing Finance Agency, Federal Deposit Insurance Corporation, and the Treasury Inspector General for Tax Administration. Now, it isn't clear to me why so many different people wanted to get their name in the paper for this one. But there you go. Seven, seven different bureaucrats quoted or law enforcement officials don't know. Do you have a collective noun for bureaucrats or is there a.

Greg: [00:20:29] I'm so I'm so jaded about anyone who's in politics. I would just say ass bags. Is it ass bags?

Caleb: [00:20:36] But they're bureaucrats. It's different. They're not elected officials.

Greg: [00:20:39] That's true. That's true. So these are.

Caleb: [00:20:40] These are public servants. Greg. Oh, okay.

Greg: [00:20:42] That's what I meant by ass bags was public service. And I do think it's nice. There's a 1 to.

Caleb: [00:20:47] 1 a congress of aspects.

Greg: [00:20:49] Of ass bags. Exactly. Then it's nice that there's a 1 to 1 correlation between the number of of those the in the Congress of ass bags and the and the conspirators. So for each each person involved there was some mucky muck that decided that they had to had to chime in on their on their disgust of what's happening in in American society. That's right.

Caleb: [00:21:13] Well, for what it's worth, I'm not so cynical about people that have decided to commit their lives to public service. So, Greg, I guess we'll just have to agree. Agree to disagree. Yeah. All right. So how did they do it? According to the press release, they, quote, conspired to submit more than 80 fraudulent PGP loan applications by falsifying the number of employees and the average monthly payroll expenses of the applicant businesses in support of these fraudulent loan applications. They conspired to submit and did submit fraudulent bank records and or fake federal tax forms. According to the charges, some of the PGP loan applications were allegedly submitted on behalf of companies the defendants controlled.

Greg: [00:21:53] Which is bonkers because having applied for these loans. Yeah, of course that's how you would do it. As you say, we got tons of employees and we pay them tons of money. But I remember going through that and they were like, You have to match up your 940 ones that you submitted to the federal government to back up how much these people are being paid. And and to me, it never even crossed my mind to go, oh, it'd be really easy just to make a fake 941 that matches how much I'm claiming on this because I was going, of course, the government is the first thing they're going to do is match up the 941 with what they're going to. And then in hindsight, I go, No, why would they have had me submit the 940 ones that I already gave to them if they were going to go to the work of matching them up. So it's like, oh geez, these, uh, this is, this was not thought through very well.

Caleb: [00:22:46] Not really. No. No. Let's let's continue because there's more other loan applications were submitted on behalf of entities that third parties allegedly owned, according to the indictment. In exchange for these, several of the defendants received large kickbacks. Naturally, the indictment further alleges the defendants laundered a portion of the fraudulent proceeds by writing checks from companies that received PGP loans to fake employees. Those that received checks included some of the defendants and their relatives. Brilliant. Yep. The fake paychecks were then allegedly cashed at a check cashing company owned by one of the people charged Right.

Greg: [00:23:27] By one of the. Yeah, One of the defendants.

Caleb: [00:23:29] One of the defendants, Yeah. The indictment alleges over 1100 fake paychecks totaling more than $3 million in fraudulent loan proceeds were cashed at this cash checking company at this.

Greg: [00:23:43] One cash.

Caleb: [00:23:44] Checking place, one cash check that.

Greg: [00:23:45] Was owned by one of the perps. That's right. Brilliant genius.

Caleb: [00:23:50] Federal agents also executed 45 seizure warrants in conjunction with the case. Some of the items include a Porsche and a Lamborghini. There it is, allegedly purchased with the obtained funds. I'm sorry that was so long, but I really had a hard time. Well, obviously, I had a hard time. I didn't cut any of it out. I felt like I felt like I had to share all of that.

Greg: [00:24:12] Now because you got to know how they did the how did they do the deed? Well, like.

Caleb: [00:24:17] Okay, 1100 paychecks. Like like, okay, think about A. If we can just take a little break here from the action. Yeah. Okay. How many people work in your company?

Greg: [00:24:28] We've. We've got four people.

Caleb: [00:24:29] Okay. And how often do you run payroll? Do you run it every other week or twice a month?

Greg: [00:24:33] Bi weekly. Yeah. Okay.

Caleb: [00:24:35] So that means 26 paychecks for four people per year. Per year. About 100. So about 100. Yeah. They did more than ten. They, they, they, they more than ten times that.

Greg: [00:24:49] Yeah. Which again and that's but that's just the ones that were cashed at this one specific place that wasn't all the paychecks because I'm looking at that and I'm going yeah if you're because because again the way that you perpetrate this fraud is you say, oh, we've got a bazillion employees. And so, yeah, you have to pay them there. I mean, if they if they're fake employees and you're really trying to have this paper trail, you're going to cut paychecks to your fake employees. But yeah, it's going to have to be way more than than if you had 40 people that you're employing for a year. It's going to have to be, you know, a ton. But it's just so, again, ballsy that that they were just like, where can I cash these? Oh, that's right. I own a business that does that. Let's just let's just do that right here. Keep it in house. Come on. Yeah.

Caleb: [00:25:36] Okay, but we're not done. In December 2021, over a year later, from the, you know, the first indictment that we talked about or the first. Yeah, the first press release we were just reading from another indictment was unsealed that charged four more people in this conspiracy. And according to that press release that was issued at the time, they had a total of 15 dependents excuse me.

Greg: [00:26:01] Dependents. Yeah. For the because they were also they were also committing fraud on on the on the child tax credit. So you got to have 15 dependents for that. So yes.

Caleb: [00:26:10] 15 defendants and they conspired to obtain a total of $35 million in loan. And they they actually obtained of that 35 million, they got 18 million in proceeds. So about half of what they Plaid half of what they applied for. Crazy. Not bad. Nope.

Greg: [00:26:28] That's, uh. That 18 million bucks is still a lot of bucks. Yeah.

Caleb: [00:26:33] Now, I don't know what to make of this next part, Greg, but one of the defendants, despite the feds undoubtedly having a mountain of evidence. Yeah. His name is Abdul Fatemi, and he's of Richmond, Texas. He did not plead guilty like everyone else. Oh, he was convicted by a federal jury in February of 2023 and which.

Speaker4: [00:26:56] Guess.

Caleb: [00:26:58] Why not? I guess maybe it was the ring later. It wasn't clear to me why this person went to trial. Maybe everyone flipped. Maybe they said he was the ringleader. Whatever. It wasn't made clear. Maybe he just.

Greg: [00:27:07] Had lots of self-confidence.

Speaker5: [00:27:10] Maybe.

Caleb: [00:27:12] Anyway, from that press release, it says Vatani distributed over $500,000 in fraudulent loan proceeds to his coconspirators and himself using bogus payroll checks and laundered a portion of the proceeds by transferring the funds from one of his bank accounts to another bank account he controlled. Vatani was convicted of one count of conspiracy to commit wire fraud, one count of wire fraud and one count of unlawful monetary transactions, i.e., money laundering. He is scheduled to be sentenced on May 8th and faces a maximum penalty of 20 years in prison for conspiracy and ten years for the money laundering. And he hadn't at the time of this recording, he hadn't been sentenced, But not looking good, my friend. Nope, not looking good. When you get up.

Greg: [00:27:57] To 30 years, that's a lot of years for for financial fraud. For.

Caleb: [00:28:02] For just some. Just some fucking money. Yep. But, Greg, what is remarkable. 35 million. 35 million is the biggest fraud that I found. Okay. Until I found a couple more cases. Okay. Bigger than.

Greg: [00:28:20] That one. That was. Those were the. That was the bar to beat. And then, Oh, yeah, you beat it a couple times. Nice.

Caleb: [00:28:25] And so here we go. A woman in West New York who submitted a at least 153 fraudulent applications seeking a total of approximately $43.8 million on behalf of at least 111 entities. Jeez, God, that must have been a ton of work. So much. Amanda J. Gloria pleaded guilty in April 2022. I could not find any sentencing info for her, so maybe she's still waiting it out. Maybe. Yeah. She went for over 40 million, so.

Greg: [00:28:53] Well, and yeah, that's. That's weird because I was going to say, maybe they're still trying to sort stuff out, but if she pleaded guilty, they. I think they just kind of go, okay and cut and then they go to sentencing. So yeah, that's an interesting.

Caleb: [00:29:08] A man in Encino, California, who submitted 27 loan applications to four banks between April and June 2020, seeking $27 million. Robert Ben Levi was convicted of bank fraud, false statements to a financial institution and money laundering. In March 2022, he was sentenced to 135 months. More than 11 years. Yeah. God damn. Yeah.

Greg: [00:29:32] Which I think I want to say that that I mean these, these sentencing because like we were saying, for the for the guy before the Abdul Fatani facing up to 30 years and then, uh, then this guy Ben Levi, getting 11 years. 11 we usually are seeing prison sentences of a lot less than that for this kind of white collar crime. But I guess my my knee jerk reaction to that is it just looks like probably the the judges involved in sentencing are just like going they're just pissed off like the rest of us, that people would abuse a, you know, money that was out there to help honest, hard working American citizens survive The weirdest fucking thing that we've any of us been through in our lives that we all made.

Caleb: [00:30:17] Just yeah. For all. Like, yeah, the weirdest thing will ever experience. Probably.

Greg: [00:30:22] Hopefully. Hopefully.

Caleb: [00:30:23] Please God, I shouldn't say shit like that.

Greg: [00:30:26] Right? You just jinxed it. What? The next. The next one's on you. Your God, that's your fault. Okay.

Caleb: [00:30:32] But yeah, I, I think it's telling that there are so many frauds that are in this multi millions of dollars in these three cases, in the tens of millions of dollars. And here's the thing. They weren't even trying that hard to conceal the fraud. Nope. These businesses didn't have employees. They didn't they weren't really trying to wash the money either, at least not in a way that would actually work. Right? Exactly. They were just cutting checks to fake people. These people aren't Marty Byrde. Greg?

Greg: [00:31:07] No. Marty Byrde, they were not. So if you haven't figured it out yet, I think you get the picture of just how widespread the fraud has been over the last three years. But just in case you just can't get enough of this kind of like we can't. Here's a couple of other stories that will just mention because they're they're notable. In May of 2022, the Department of Justice announced that Don V Cisternino had been extradited from Croatia to face charges stemming from a fraudulently obtained loan for $7.2 million. The press release says that Sister Nino's loan application claim that Sister Nino's New York businesses magnifico A-plus on the name Nice New York because it's magnifico co this listen. Okay so as delightful as that is just keep listening but that company had 441 employees and monthly payroll expenses in 2019 of more than $2.8 million. But in truth, in truth, Magnifico had few, if any, employees other than Sister Nino himself and his girlfriend. So he said 441 when in reality was like two or less.

Caleb: [00:32:37] Right. And by the way. Just because I was curious, if you have 441 employees and your payroll expenses is about $2.8 million.

Greg: [00:32:47] Oh, what's the monthly?

Caleb: [00:32:50] About 6300.

Greg: [00:32:51] Bucks. That's nice. He's playing. He's paying his people well, he's a hero. He's a hero of the working man. Just certainly that's. I love that you crunched that number. That makes me so happy. Oh, So okay. But then on top of that, so that's what he was claiming was 2.8 million per month. But Magnifico did not report any wages to the IRS in 2019. But in support of his loan, Cisternino submitted false W-2s for Magnifico's purported employees, many of which listed the names and Social Security numbers of actual people. But these people were not Magnifico employees, and these people had not authorized Cisternino to use their identities. So clearly there's not just peep loan fraud, but also identity theft going on with this $7.2 million fraud. But then on top of that, Donny Sister Nino's loot, he used those funds to purchase a Lincoln Navigator, a maserati, a Mercedes Benz and approximately 12,579 square foot residence in Seminole County, Florida. And it's a hell of a house. I know that podcasts are not visual media, but if but there was a picture of this house that was included in the press release, there was we've linked to it in the show notes. And this this huge compound. It's a compound. It's like this.

Caleb: [00:34:31] It looks like a compound.

Greg: [00:34:32] Yeah, it's it's a humongous thing. Looks like a big ass barn. It's got a tennis court. It's got a huge swimming pool and there's other structures as well as that. It's a it's it's a nice spread and all obtained with certified fraudulent funds. Yeah. So. So then the kicker is January 2023, Sister Nina was sentenced to eight years and six months in prison. Again, another heavy sentence for the few people who got caught with their hand in the cookie jar. Okay. One more fraud of note. In May 2021, ProPublica reported that more than 300 PGP loans had been made to fake companies, most of which were claiming to be farms. And they had names like Ritter, Wheat Club, Daily Nuts and Beefy King. Listen, if I start a farm and I don't name it either Deely Nuts or Beefy King Caleb, you can come punch me in the head because those are the best names I've ever heard for a farm. All of these 300 loans were obtained through Kabbage, an online lender which Kabbage They processed over 300,000 PGP loans before the first round of funds ran out. Caleb That's bonkers. Yeah. I because one of the things that everybody was talking about when this was going down is that and like people, there was people who were at a grave disadvantage to get PGP loans. And it was those people who did not already have a close relationship with any kind of bank frigging Kabbage was an option. Just go online and get your loan through Kabbage I don't even remember hearing that. This this was very surprising to me that they were even a loan option.

Caleb: [00:36:47] Yeah, I think the the fintechs and we'll talk about this a little bit later but the fintechs were, um, overall slightly problematic in certain ways. Yeah. And this appears to be one instance where that was the case.

Greg: [00:37:05] Absolutely. So just also those three companies that I mentioned, the Ritter Wheat Club, Deely Nuts and Beefy, Beefy King, uh, each of them claimed to have how many employees, one employee and which again, huh? I mean, I guess if you got an employee, you can claim a loan. And if you're claiming 300, then maybe it's going to add up. But that's, that's weird to me that if you're going to commit the fraud, that you're going to do it like that. But here's the other thing. All of these all of those those companies claimed that they were located on the New Jersey coast. And so when investigators called the guy who lived at one of the addresses that listed it was the mayor of the town, and the mayor is quoted in the article as saying, there's no farming here. We're a sandbar, for Christ's sake. So, again, this wasn't can you call that identity theft? It's more like they looked through a phone book and just started picking random addresses to put.

Caleb: [00:38:14] Yeah, you have to wonder, right, where you know. So it appears that they did. Whoever perpetrated this particular fraud is like they they just came up with. Yeah. 300 random addresses. Right. And, and it's funny because that ProPublica article, they even have like a heat map of where the frauds were located and like the Jersey Shore where these three were located, like the Jersey Shore, there was a high concentration there. And, you know, it's not exactly a hotbed of agriculture.

Greg: [00:38:49] Right, right, right. Yeah. It's it's it's a yeah, it's a sandbar, for Christ's sake. It's a it's a sandy beach. We don't grow much on the sandy beach. The article goes on to report that there was also an anesthesiologist in Hartington, Nebraska, who did obtain a legit loan for his anesthesia business. But then he was approved for another one. Only this time it was for a potato farm. And guess what? The anesthesiologist side gig was not. It was not potato farming. So, of course, he didn't know anything about the second loan. And another one of these was a president of the local bank also in in Hartington, Nebraska. And he was approved for a loan that he knew nothing about. And the business listed for him was strawberry Farmer.

Caleb: [00:39:50] I think it's worth noting that in the midst of and the aftermath of all this fraud, a congressional committee decided to investigate why this was all happening. And it's no surprise that this came about due to this kind of onslaught of reporting exposing pandemic fraud. Now, you mentioned earlier, Greg, that if you ballpark fraud in the 60 to 70 billion range, that makes it as big as Bernie Madoff's Ponzi scheme and Bernie Madoff. You know, that particular fraud generated a lot of attention and press. And by comparison, I would say fraud has not generated that level of attention or press. But there has been quite a bit of reporting around this. Very good reporting, actually. I mean, we rely on it to do these podcasts. So it's not nothing. No, but and and that and that's what that's what kind of got this committee to jump into action because they were reading. They were reading the news. And they're just like, geez, Louise, this thing, we did a lot of fraud, right?

Greg: [00:40:58] Well, and if you want to think about the victims of this fraud, because like we were saying, there was about there was just almost exactly 37,000 victims of the Bernie Madoff fraud. The victims of the fraud are every taxpayer in the United States, everybody else.

Caleb: [00:41:17] Yeah.

Greg: [00:41:17] So so there's constituents out there that are going to be pissed off at the people who did not give proper oversight to the loan process. Yeah.

Caleb: [00:41:29] So in December 2022, the House Select Subcommittee on the Coronavirus Crisis released its 130 page report after an 18 month investigation. And according to The New York Times, the report was, quote, packed with startling details about how negligible government oversight and a rush to get cash out the door to help devastated businesses created conditions ripe for fraud. Some non-bank financial technology companies known as FinTechs exploited those gaps to collect outsized profits, which they maximized by ignoring typical lending safeguards and at times by outright flouting the government aid programs rules.

Greg: [00:42:11] Exactly. Because the bankers are were supposed to be part of the backstop of this whole program. But if the bankers are like, I mean, again, bankers. Well, and you're going to get to this. The banks were incentivized to get out as many loans as they possibly could. Yep.

Caleb: [00:42:26] Now, maybe a little bit of a tangent here, but like. Well, I would say legacy banks and maybe this won't make the final cut, but legacy banks, you know, the, you know, the brick and mortar types, one of the things that is kind of came up in the midst of all this was like people were underbanked. There were plenty of people who were underbanked that had businesses but didn't get a loan. They had businesses who needed money, but they couldn't get a loan because they were underbanked. They didn't have banking relationships. So naturally, fintechs kind of would step in and say, Oh, we can solve this problem for you because we can lend you money or we can help you obtain the money, which.

Greg: [00:43:06] Seems very noble. It seems like very noble of them indeed.

Caleb: [00:43:09] Absolutely. Absolutely. However, what these fintechs do not probably have are the kind of legacy infrastructure that your average brick and mortar bank has, which is in banks, are highly, highly regulated, highly regulated businesses. Yeah, right. So they do things I don't want to say they do things by the book because banks have gotten in plenty of trouble doing things not by the book, but in something like this where you're just talking about small business loans, it's pretty cut and dried, wouldn't you say? Or am I wrong about that?

Greg: [00:43:43] Well, no, no, you're absolutely right. Because, again, with your with your like you said, the legacy banks, they all have an army of thin, respectable, thin Bisbee, bespectacled, bespectacled, bespectacled, bespeckled be thin glassware and compliance officers. They just basically me.

Caleb: [00:44:07] People that look like me, people.

Greg: [00:44:08] That look like you just like but in like a short sleeve button up with a tie. People like that who their entire job is to go, Well, I don't think we can actually do that. That's they don't they didn't have that army within the fintech companies. Right. Right.

Caleb: [00:44:25] Now, this this House Select subcommittee report was highly critical of two companies in particular that helped lots of businesses obtain loans. The first one is called Womply Fake. And the second one is called Blue Acorn.

Greg: [00:44:45] It's not the company that you can like. They'll send you boxes of food that you can prepare. That's it? Yeah. We're hoping there'll be a sponsor. Yeah. Yeah. Blue acorn. Yeah. Oh, Blue Apron. Yeah. Okay. Acorn close.

Caleb: [00:44:58] Yeah. It's like one letter off, right?

Greg: [00:45:00] Pretty much. Pretty much.

Caleb: [00:45:03] Anyway, so. Yeah. Womply and Blue Acorn. Both companies developed ways to help lenders facilitate applications at a massive scale and did little to discern between legitimate applications and those that were potentially fraudulent. The Times reported that Womply earned more than $2 Billion in Fees and Blue ACORN earned more than a billion. The New York Times investigation, or sorry, a separate New York Times investigation, found that between the two companies, they facilitated one third of the loans in 2021.

Greg: [00:45:33] Now, let me let me just add. Yeah. Oh. Oh, yeah. Yeah. I didn't mean to step on your toes. No, but I'm just saying.

Caleb: [00:45:41] For those two companies to do a third of the loans in 2021, which is like the height of the pandemic. Yeah, Bonkers.

Greg: [00:45:48] Mind boggling. But here's what. Here's where my brain went. Was that it said that they didn't they didn't do enough to identify the applicants that were potentially fraudulent. But here's the problem with fintech companies is that and I guess this is just my understanding of them, is that there's not the the relationship. They've automated stuff, they've put it online. It's very much a you know, it's very transactional, not relational. Traditional banks, possibly to their fault are very they're relationship heavy is what those those banks are. Again, I have a very close relationship and have my entire career that I've had at my current job. I've had a real tight relationship with our company's banker at Zions First National Bank. And I. I know the guy. I can text him even after banking hours, and the guy will get back to me at a fintech company. I don't like that. That guy. My guy. He could he's who gave me the loan and he could easily if I was if I asked for $10 million, he'd be like, Hey, Greg, what the hell? But for these fintech companies, they don't know. There's not that relationship. So. So I think it'd be much more difficult for them to even possibly sniff out what's potentially fraudulent than than just a traditional bank would think.

Caleb: [00:47:17] You're making a fine point. Greg, thank.

Greg: [00:47:19] You.

Caleb: [00:47:19] So things went sideways when some of womply and blue womply.

Greg: [00:47:25] Can't get over that. Womply Womply. That's a that's a that's a tech bro name. Hey, what should we name our bank? You know, it'd be hilarious. Let's call it Womply. Womp. Womp.

Caleb: [00:47:40] So like I said, things kind of went sideways When some of womply and blue Acorns lending partners started to express concerns about their practices. Now, I invite you to read this entire New York Times article because it's very good, but there are a couple of highlights that they pulled from the the Select Committee's report, which, by the way. You know, if you had time to check this, Greg. But that report is no longer available and the committee's website is no longer available. Oh, and my hunch is, is that it is because Congress is no longer controlled by Democrats. It's controlled by Republicans, and they just decided to scrap all the work. So just I would be happy. I would be I would be I would be in your debt to anyone who dug up a copy of that report and sent it to us because I looked everywhere and I could not find it.

Greg: [00:48:35] Huh. That's that's wild. Usually, I mean, people can delete tweets like, you know, five years ago and somebody still has a screenshot.

Caleb: [00:48:43] Well, and I and I went to Twitter to the committee's web because the, the committee's Twitter account is still up. Oh, and the tweets are all still there. Okay. But when I would click on the links to the report.

Greg: [00:48:57] 404 not found take.

Caleb: [00:48:58] Me to the Yeah.

Greg: [00:48:59] Site not found.

Caleb: [00:49:00] Yeah. Wow.

Greg: [00:49:01] Wow that's that's ominous.

Caleb: [00:49:04] So a couple things that the Times noted of the House report stated that Blue Acorn transferred $300 million to its owners and spent $666 Million with a marketing company controlled by its senior leadership. Nice.

Greg: [00:49:20] 666 of anything is is A. There's that's ringing a bell.

Caleb: [00:49:25] Yeah get that it gets Even though I'm not a religious person, it still gets my attention. Yep. Um, and I'll just remind everyone, Blue Acorn got about a billion in fees and that accounts for about 966 million of that 1 billion.

Greg: [00:49:42] Wow. Oof! Yeah.

Caleb: [00:49:45] Womply got 5 million in loans from its largest lending partner, Harvest Small business finance. And when the company tried to get it forgiven, the SBA said nope.

Greg: [00:49:59] Nice. Nice.

Caleb: [00:50:01] Just so. So. So. So. Womply was in that 8% of loans. Not forgiven. Right?

Greg: [00:50:07] Which is weird because you'd think I mean, just in terms of the rules, you'd think that they could get a decent chunk of that forgiven. So the SBA, just like stiff arming them, that was that was a they were stiff arming them with the middle finger and appropriately so. Clearly. Yeah. Yeah.

Caleb: [00:50:28] The CEO of one of Womply lending partners, Chris Hearn of Fountainhead Capital. He even had to take out a restraining order against Womply to prevent the company from destroying documents it had on Fountainheads loans. Nice. Hearn told the committee's investigators that, quote, Womply is fraud detection systems seem to have been put together with duct tape and gum. So, Greg, did we learn anything this time?

Greg: [00:51:04] Yeah, we did. And I think a lot of it a lot of the stuff that I learned, unfortunately, I don't think is particularly practicable. Like there's not a lot you can do with it, but it's still learning that I think is good to get in your brain. The first the first one and this has come up in my mind a lot, is that governmental crisis aid is is one of those things that's very much under the umbrella of damned if you do, damned if you don't for for politicians. And what I mean by that is this. Is since it was A and you even alluded to this in some of the stuff you said is that politicians were under the gun to get critically needed money to businesses that were drowning. And so they had there was a choice. I don't know if anybody felt like it was a choice, but there was a choice that had to be made of, do we roll this out slowly with enough safeguards to minimize the opportunity for fraud, or do we get it out quickly just so that we can for sure help the people that need to be helped? And if fraudsters take advantage of it, that's just the price that we have to pay to get this stuff to the people who need it fast enough. And the damned if you do, damned if you don't. Thing is, and obviously they took the latter of those two options where they got it out quickly and it was the stage was set for people to again steal somewhere between a 10th and a, you know, 10% and 15% of all the money that was given out.

Greg: [00:52:36] But but yeah, so you're going to get you're going to get run up the pole if you get stuff out too fast and fraud happened, but you're probably going to get even. You know, the option is that you don't roll things out in a quick manner. And there's lots of people in like innocent people who don't get the help that they need and they end up suffering. So they suffer. Yeah, Yeah. So, so I really think that this type of fraud, again, it's kind of like it reminds me of businesses like particularly in the retail space where they actually in their budgets, they budget for shoplifting where they go, okay, approximately this, much of our inventory is just going to get stolen. So we just have as much as we hate it, we just have to take it on the chin and put that into our our financial models for our company. And I think the same thing is the case with, again, emergency federal funds where they've got to go, okay, people, there's bad people out there who are going to take advantage of this. And we just have to we just have to realize that's the thing. Now that nobody politically, nobody's going to I don't ever hear anybody saying that on the news where it's like, hey, we decided to let this be be something that fraudsters could could have a heyday on. But that's because we care about you taxpayer, because that that just doesn't fly. But it makes a lot of sense to me.

Caleb: [00:54:07] Yes. We're going to mortgage your children's future so that people don't run out into the streets in a crazed panic. Right. And I get it. I get it. The the in the show notes, there's an article I think I mentioned it a couple of times throughout the episode, but it talks about this very thing and it talks to people from the Trump administration. It talks to people from the Biden administration. And they it is like I think you will find that the political will, the the political calculus for both landed on. We helped a lot of people who needed help. Yeah and full stop like they don't really want to talk about the fraud because the fraud is pretty The fraud. The fraud is huge. The scope is ridiculous. But yeah, the other side of that coin is what you just talked about, which is they helped millions upon millions of businesses and people maintain their livelihoods, so. Huh.

Greg: [00:55:07] Yeah. So I guess but we.

Caleb: [00:55:08] Still have a podcast episode. We have to now, so.

Greg: [00:55:11] Yeah, whatever. Yeah. Well, and, and maybe the practical part of that whole thing is I don't want to go into, I don't want to become a politician. Yeah. Because, because I would hate having that kind of decision to make, especially, especially again with my accounting brain. I'd probably get so caught up on on the risks involved in the potential fraud that I might freeze and be like, No, I don't know and be ineffective. So, um, yeah, there you go. So, so lesson number one, don't let Greg go into politics. Here's the second lesson that I learned, and I alluded to this earlier, and that is that the application process, like I said, from where I sat, it was complex and it was onerous, but that's because I was trying to play by the rules. I learned that compliance is so much easier for people who don't give a shit about the rules and are just trying to take advantage of the system. So much easier for them than for the rest of us. Because like I said, I got two loans and my my, the math I had to do was so much simpler than most other companies, but it still felt like it was. It was just this burden on me to make sure that I, I checked all the boxes and I did all the right things.

Greg: [00:56:36] And like I said, especially when the rules kept changing and I eventually was just like, I'm just not going to do anything until they finalize the rules. You know, I'm not I'm going to stop doing a lot of this math to see if I'm in compliance until they finally say, here's what we did. And then I go, okay, here's what I did and here's what here's where it falls. But like I said, if you're if you're stealing all that, it's like all that stuff be damned. You just you just fill out your forms and collect your money and disappear. So, yeah, so, so I guess that what it what did I really learn? I really learned that that the brain damage that the accounting profession experienced was probably largely not felt by the, by the fraud committing industry of the United States of America. Right. Again, not very practicable but but it was definitely a light bulb of just going, yeah, these guys didn't care. And again, we're looking that, what, 99.9% of the fraud probably got away with it. They they, they got to keep their money and that's that's what kind of makes your heart sink.

Caleb: [00:57:48] Well, one thing one one thing that maybe will lift your spirits. Ever so slightly. Yes. Is that. They have extended the prosecution window for ten years, uh, to, uh, from from the end of the program. So the statute of limitations, I believe, is much longer. They they, they, they codified it. They passed it into law. So I don't remember the exact details, but they made a point to say it's like, oh, we're gonna we we reserve the right to come after you for another decade. So.

Greg: [00:58:25] Gotcha. So you're basically saying that we're going to have.

Caleb: [00:58:27] We have ten years of podcast material.

Greg: [00:58:29] We've got eight more, eight more follow up episodes of, of what happened this year on the up front. Yeah, maybe. Yeah, maybe. There you go. All right. Okay. That's it for this episode. And remember, the US government has the worst internal controls or maybe it's external controls. So if you're going to steal money, maybe you should try stealing it from the federal government. Just saying.

Caleb: [00:58:53] And also remember that you are a good person, so don't steal from the US government despite their lack of internal controls or external controls or whatever.

Greg: [00:59:06] If you want to drop us a line, please do. We'd love to hear from you. Send us an email at Omar Fraud at Earmarks. Com. We receive quite a generous amount of email from folks and a lot of our episodes have been birthed from the ideas that you guys send us. So we'd love to hear from you, especially if you've got a favorite fraud that you haven't heard us talk about yet. Drop us a line and let us know what that is. Caleb If people want to talk to you but they want to keep me out of it, where can they find you? Out there, in the in the ether.

Caleb: [00:59:37] If they want to keep you out of it. Yeah. I'm on Twitter. One of these days I'm going to stop saying that I'm on Twitter.

Greg: [00:59:44] Yeah, I. Are we there yet? I have a Twitter account. Do I have I gone on it in the last three weeks? Maybe not.

Caleb: [00:59:52] I am on Twitter at Newquist and LinkedIn. My full name backslash, Caleb Newquist, Greg, I bet you're on LinkedIn. At least I.

Greg: [00:59:59] Am. Well, I'm on both. I'm on Twitter at Greg Kyte, I'm on LinkedIn, just Greg Kyte, CPA. You can search for me at that. Yeah. Or if you or or ideally send an email to Oh my fraud@earmark.com.

Caleb: [01:00:16] Yeah. Oh my fraud is written by Greg Kyte and myself. Our producer is Zach Frank. If you like the show, leave us a review and share with a friend. Rating the show and leaving reviews helps people find the podcast and also subscribe on Apple, Stitcher, Spotify, Google, Amazon. I don't know. Wherever you listen to podcasts, where do people listen to podcasts?

Greg: [01:00:39] Is it iHeart Radio?

Caleb: [01:00:41] Iheart Radio, iHeartRadio? That's another one. Wherever you get podcasts. If you're an accountant, listen on earmark, listen on earmark, get some CPA.

Greg: [01:00:50] It's so easy.

Caleb: [01:00:52] The best. Yeah. Join us next time for more avarice, swindlers and scams from stories that will make you say.

Greg: [01:00:58] Oh my Fraud. Oh, my fraud.