Fraudsters cutting in on funds meant to save small businesses, feds report

Kevin Turner, proprietor of Coconut Kev's t-shirt embroidering store in Townsend, Ga., applied for a $10,000 grant through the Economic Injury Disaster Loan program. He said he could have used more money, but he didn't want to be saddled with a loan he may not be able to pay back. SPECIAL
Kevin Turner, proprietor of Coconut Kev's t-shirt embroidering store in Townsend, Ga., applied for a $10,000 grant through the Economic Injury Disaster Loan program. He said he could have used more money, but he didn't want to be saddled with a loan he may not be able to pay back. SPECIAL

Credit: SPECIAL

Credit: SPECIAL

Wary of debt, business owners say they don't take as much money as they could

Instead of helping struggling small businesses, hundreds of millions of dollars in emergency pandemic relief funds may be in the hands of scam artists who cheated the system, federal reports show.

The latest concerns involve the Small Business Administration’s Economic Injury Disaster Loan program, which provided quick advances of up to $10,000 to small businesses that applied for long-term loans. Businesses could keep the advances even if their loan application was rejected, and watchdogs say that fraud in the program was rampant.

Meanwhile, some Georgia entrepreneurs say they haven’t borrowed as much as they really need out of fear of drowning in debt if the economy sinks even more. The emerging picture raises more questions about whether CARES Act funds approved by Congress to save jobs in the pandemic have been going to the right people.

Kevin Turner sought only $10,000 from the EIDL program to assist his T-shirt printing shop near the Georgia coast, where business has plummeted 40 percent.

“I could use more. Everybody could,” Turner said. “But I’ve applied for what I needed at the time, what I thought I might need. I haven’t tried to take advantage of anything.”

EIDL ran out of its allotment for the advance grants on July 11. Then last week, the SBA’s internal watchdog issued an alert that there were indicators of “potentially rampant fraud” in the program that required immediate action. Nine financial institutions have reported more than $187 million in suspicious transactions involving disaster loan money, and the inspector general’s office said it tallied $250 million given to possibly ineligible recipients and $45.6 million in apparent duplicate payments.

Reports of alleged malfeasance continue to pile up in another multi-billion dollar small business loan initiative, the Paycheck Protection Program, meant to keep workers on payrolls of companies with 500 employees or less. On Monday federal prosecutors in Atlanta brought criminal charges against another PPP recipient, Kenneth L. Wright Jr., accusing him of conspiracy and false statements by claiming his company, Lux Realty Group, had 16 employees in order to receive a $300,000 loan, which he began funneling to two co-conspirators.

Wright has pleaded not guilty and is free on a $10,000 bond. He declined to comment on Wednesday through his attorney.

Atlanta attorney Vic Hartman, author of "The Honest Truth About Fraud - A Former FBI Agent Tells All,” said he expects fraud investigations and charges connected to CARES Act funds to go on for years. SPECIAL
Atlanta attorney Vic Hartman, author of "The Honest Truth About Fraud - A Former FBI Agent Tells All,” said he expects fraud investigations and charges connected to CARES Act funds to go on for years. SPECIAL

Credit: Special

Credit: Special

Congress set up few safeguards in CARES Act grants and loans for small businesses, trying to put money on the streets fast and leaving it to federal agencies to ensure it was disbursed properly. Vic Hartman, an Atlanta attorney and a former FBI agent specializing in white collar crime, said the unprecedented magnitude of the programs has paved the way for the largest government fraud in U.S. history.

How much of the money went to legitimate recipients versus bad actors will likely take years to sort out, he said.

“Was it a 2% ripoff or was it a 20% ripoff?” Hartman said. “I don’t think we can know that yet. Only with hindsight will we see how smart the process was.”

Georgia U.S. Rep. Buddy Carter said he wasn’t surprised by the inspector general’s scathing report on the EIDL program.

“Keep in mind, when we first passed the CARES package, we intentionally made it loose,” Carter, R-Pooler, said. “In other words, we told the Treasury department, we told SBA, we want you to guard against waste, fraud and abuse, but we’re going to intentionally make this loose and let you make up the regulations so that we can get the money out there as quickly as we can.”

The congressman said he does not think a proliferation of scam artists has prevented legitimate businesses from receiving the aid they need through EIDL or PPP.

U.S. Rep. Buddy Carter, R-Pooler, said with so many people hurting, Congress wanted CARES Act money to get to recipients quickly, so they left it to the Small Business Administration to guard against waste, fraud and abuse.
U.S. Rep. Buddy Carter, R-Pooler, said with so many people hurting, Congress wanted CARES Act money to get to recipients quickly, so they left it to the Small Business Administration to guard against waste, fraud and abuse.

SBA data shows that in Georgia, nearly 287,600 advances totaling $1.1 billion were doled out. Only 140,764 economic injury disaster loans were approved, totaling $6.3 billion. It’s not clear how much of that gap can be attributed to ineligible applicants.

SBA Administrator Jovita Carranza has defended the EIDL program’s “robust internal controls,” and a spokeswoman said Wednesday that the agency is referring suspected fraud cases to its inspector general’s office.

“At the onset of this crisis, SBA proactively initiated stringent fraud-prevention safeguards that have so far prevented the processing of thousands of invalid applications,” the spokeswoman said in a written statement.

For those actually entitled to the money, the hard times continue. In McIntosh County, Kevin Turner’s Coconut Kev’s Custom T-Shirts store hasn’t been opened to the public since March. Not only has business plummeted, he and his wife caught the virus in June and recovered, and they don’t want a repeat.

Amid the pandemic, gone are the orders for family reunion T-shirts or orders connected to the Blessing of the Fleet festival in Darien. Both of his employees left during the mandatory shutdown, so he works alone, doors locked, filling bulk orders from construction and landscaping companies.

“I’ve had enough business where I can pay what I need to pay,” Turner said, “so I’m not going to run around and just take money for the sake of taking money from some businesses that may need it.”

Clay Hutchinson, owner of Sapelo Station seafood restaurant in McIntosh County, said his business qualified for a $79,000 loan through the Economic Injury Disaster Loan program. He only took $49,000, he said, not wanting to get in over his head. SPECIAL
Clay Hutchinson, owner of Sapelo Station seafood restaurant in McIntosh County, said his business qualified for a $79,000 loan through the Economic Injury Disaster Loan program. He only took $49,000, he said, not wanting to get in over his head. SPECIAL

Credit: Special

Credit: Special

A half mile up U.S. 17, Clay Hutchinson’s Sapelo Station seafood restaurant has also seen a 40 percent drop in business, partly because he can’t fit as many customers into the restaurant with social distancing requirements. The business qualified for $79,000 from EIDL, but Hutchinson said he opted to borrow only $49,000, not wanting to get in over his head. He received another $21,000 through PPP, which may not have to be paid back if it’s put toward wages, rent, mortgage interest or utilities.

Hutchinson said he used some of the money to cover part of his parking lot in 18 tons of beach sand, with umbrellas and beach chairs that can seat 20 people, and to build an enclosed outdoor bar so customers don’t have to venture inside for a drink.

“I don’t know if I would have been able to reopen without that money,” he said. “But I spent it all, and I wish I’d taken the whole thing, because I don’t have the volume of people that I really need to keep it running successfully. I’m treading water, is what I’m trying to say.”

Share your tips on EIDL, PPP

The Atlanta Journal-Constitution’s investigative team wants to hear about small businesses’ experiences in obtaining funds through the federal government’s Economic Injury Disaster Loan program and Paycheck Protection Program. We also want to know about any contractors or businesses that received CARES Act money, but perhaps shouldn’t have.

If you have information to share, please contact Johnny Edwards at jredwards@ajc.com or Lois Norder at lois.norder@ajc.com.