PROVIDENCE – It started with a phone call to a local police department. A resident warned that two local businessmen had applied for federal COVID-19 funding for three restaurants that either had closed or they didn’t own.
The tip got passed on to the FBI, then to the desk of Lee H. Vilker, the criminal division chief for the U.S. Attorney’s Office for the District of Rhode Island. Vilker’s desk at home, that is.
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It was early April 2020, the COVID-19 pandemic in full force and the state under strict stay-at-home orders. Congress had just passed a sweeping set of relief programs, including the Paycheck Protection Program offering loans to help small businesses cover payroll costs.
When Vilker heard that the former Remington House restaurant owners may have applied for $500,000 worth of PPP loans to pay nonexistent employees, he knew he had to act fast to investigate, and, if confirmed, bring charges against the fraudsters.
“There was definitely an element of bringing in cases as promptly as possible to show the public that we’re out there, looking after this money and there to recover it,” said Zachary A. Cunha, U.S. Attorney for the District of Rhode Island.
Over the next three weeks, Vilker worked feverishly, combing through personal tax records and social media accounts and listening to recorded phone calls in which FBI agents posed as bank loan officers trying to get more information out of the suspects. On May 5, the office charged David Butziger and David A. Staveley in the first-in-the-nation COVID-19 relief fraud case.
As Cunha suspected, there would be many more to come.
As of February, the Rhode Island U.S. Attorney’s Office has charged 30 defendants with fraud from funding through the Coronavirus Aid, Relief, and Economic Security Act. In some cases, like with Butziger and Staveley, they were able to prosecute before any money went out.
Other times, it was too late. About $8.9 million of COVID-19 relief funds was given out to scammers in Rhode Island, though some of it has been recovered.
The bulk of the money, $8.1 million, was doled out through fraudulent unemployment insurance claims, while the remainder, about $750,000 was for PPP loans.
After a steady stream of investigations, and cases, the more complex of which can sometimes take up to a year to bring charges on, Cunha thinks the flood of COVID-19 fraud cases coming through the office will be slowing down. But it’s definitely not over.
“Based on the trajectory of funding, I think we are going to start seeing less than we have seen over the last couple years, but I suspect there is more to come,” he said.
And it’s still a top priority for his office, which has dedicated four senior prosecutors, including Vilker, to investigating federal relief-related fraud.
“Experience tells us you need to staff up for these situations at the beginning,” Cunha said.
Especially because fraudsters are becoming more ruthless and rampant. Many of the scammers his office has investigated for COVID-19 funding are also tied up in elder fraud or romance scams. Investigating one scam can open the doors to a web of lies, often well-documented through phone records, tax information and even publicly online.
“You would be surprised what people put on social media,” Cunha said.
Rhode Island’s insular, everyone knows everyone persona may help too. A few tips have come from people who knew the suspected scammers, either personally or professionally. A local bank might flag a PPP loan application for a business they’ve never heard of, for example.
“Relationships and familiarity are really important for a lot of these cases,” Cunha said.
Not that Rhode Island has necessarily fared better than other states. Without a statistical analysis, Cunha said he thought the amount of COVID-19 fraud in Rhode Island relative to the federal funds given out was probably on-par with other states.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.
