Business Owner Charged with Fraud Connected to the Paycheck Protection Program
On June 15, 2020, the owner of several information technology companies was charged in a criminal complaint with bank fraud and for making false statements to a financial institution. The Complaint alleges the owner filed a bank loan application seeking $441,138 in a forgivable Paycheck Protection Program (PPP) loan, guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
According to the Complaint, the owner significantly overstated the payroll expenses of one of the companies he controlled, N2N Holdings, LLC. As part of the application, the bank allegedly received multiple false and fraudulent IRS documents. A comparison between the documents submitted to the lender and N2N Holding’s IRS filings showed the company reported significantly lower payroll expenses to the IRS. For example, the bank’s copy of N2N Holding’s Form 941 for the fourth quarter of 2019 reports that the company paid wages, tips, and compensation in the amount of $218,875. But the Form 941 submitted to the IRS by N2N Holdings indicates it paid $0 in the fourth quarter of 2019. The bank ultimately declined N2N Holding’s loan application.
PPP loan proceeds must be used by businesses for permissible expenses, including payroll costs. Under the program, the interest and principal on the loan may be entirely forgiven if the business spends the loan proceeds on the permissible expense items within a designated time period and uses at least 60% of the PPP loan for payroll expenses.
Additional information can be found in the Complaint and the DOJ’s press release.
Foundry Pays Nearly $11 Million to Settle False Claims Act Allegations
This week, Bradken Inc., a Washington-based foundry, paid $10,896,924 to resolve allegations that it violated the False Claims Act by producing and selling substandard steel components for use in US Navy vessels.
Bradken has produced steel parts for the Navy since 1984 and is the leading supplier of certain high-yield castings used in the construction of naval submarines. The court filings allege that between 1985 and 2017, the foundry produced casting that failed lab tests and did not meet the Navy’s standards. The United States claimed the Director of Metallurgy at the foundry falsified test results and knowingly devised an executed a scheme to defraud the Navy. Bradken then invoiced shipbuilders for steel parts that were not made to military specifications, thereby causing those shipbuilders to invoice the Navy for defective parts. The government further alleged that Bradken lacked adequate internal controls because it failed to identify the hundreds of falsified test results.
In addition to the settlement, the United States Attorney’s Office for the Western District of Washington filed a criminal charge against the former Director of Metallurgy for committing the crime of major fraud against the United States and filed a criminal information charging Bradken with major fraud against the United States. The court filings state that Bradken’s management discovered the fraud in May 2017 and confronted the Director of Metallurgy, who denied altering the test data and suggested there must have been a legitimate explanation for the test results. According to the Information, however, Bradken’s management concluded the employee’s denials were not credible. Yet, when Bradken subsequently disclosed its discovery to the Navy, the foundry made misleading statements suggesting the discrepancies were not the result of fraud. Bradken ultimately admitted that these statements hindered the Navy’s investigation and its efforts to remediate the potential safety and operational risks presented by the fraud.
Bradken accepted responsibility for the offense and agreed to take remedial measures under a deferred prosecution agreement. If Bradken complies with the agreement, the government will dismiss the charge after three years. The former Director of Metallurgy is expected to make her initial appearance in court on June 30, 2020.
The DOJ’s press release includes additional details. The Complaint against the metallurgist can be read here. The Bradken Information is here.
Three Individuals Charged in $180 Million Scheme to Defraud Healthcare Benefit Programs
Last week, an indictment against three individuals for their alleged participation in schemes to defraud private insurance companies, Medicare, and TRICARE was unsealed. According to the government, the scheme resulted in more than $180 million in fraudulent billings, including more than $50 million from federal healthcare programs.
Using several pharmacies, the defendants allegedly formulated, dispensed, and billed insurance companies for compound medications, which were medically unnecessary. The defendants also allegedly offered kickbacks and bribes to marketers and healthcare providers to refer and prescribe prescriptions for the compound medications. Prosecutors further allege that the defendants attempted to conceal the proceeds they obtained by laundering the money through high-value purchases such as real estate, luxury cars, and gems.
Read the press release here.