The Paycheck Protection Program (PPP) passed by Congress last March was supposed to help struggling business owners keep their workers employed during the pandemic. It was a part of the CARES Act, lending out $349 billion dollars over the past ten months.
However, not everyone is putting this money to good use. A Florida nurse was recently arrested after lying to the government about the nature of his small business, Professional Skills Inc.
He’s now being charged with engaging in transactions in unlawful proceeds and making false statements to a financial institution.
Cashing in During the Coronavirus Pandemic
Giraldo Caraballo, 55, a nurse in Miami, FL, was one of the many people who applied to the PPP when it first went online last year. Under the terms of the program, employers do not have to pay back the money they borrow from the federal government as long as it goes directly to their employees. It was a way of staving off mass unemployment when many businesses were closing their doors.
Federal prosecutors say Caraballo used his company to scam his way into a massive relief package. According to a criminal complaint, he claimed his company had a total of 28 employees with an average monthly payroll of $168,000, which investigators now say is untrue.
Caraballo also applied for an Economic Injury Disaster Loan, which was also part of the CARES Act. These kinds of loans are reserved for businesses that are suffering economic hardship due to the pandemic. Caraballo got approved for a $55,000 loan using this program, bringing in a total of $420,000 in illegally obtained coronavirus relief funds.
Instead of sending the money to employees, prosecutors say Caraballo transferred it to another account and used it for personal expenses. He made his first appearance in federal court in Miami on Friday. There is currently no defense attorney listed for the case.
Preventing Fraud Going Forward
When Congress approved the CARES Act in March of last year, it was designed to get a lot of money out the door to struggling businesses as quickly as possible. Many applicants received money without having to show extensive documentation.
According to the Wall Street Journal, around $525 billion in loans were distributed to 5.2 million companies between April 3rd and Aug. 8th. The money went to big banks and large lenders, most of which had a vested financial interest in loaning the money to large corporations, so they could recoup steep service charges. This put smaller businesses at a disadvantage when it came to securing funds.
In November of 2020, the Inspector General of the Small Business Association, who’s responsible for overseeing the rollout of the PPP, said there were “strong indicators of widespread potential abuse and fraud in the PPP.”
Regulators say tens of thousands of companies received money through the program for which they weren’t eligible, including corporations that were created after the pandemic began, those with over 500 employees, and those listed on the “Do Not Pay” database because they already owe the government money.
Regulators also say thousands of organizations received more money than they should have based on the number of employees and their current salaries. Overall, the U.S. Treasury Department has received 2,495 suspicious activity reports since the launch of the program.
Congress is launching another round of the PPP this week, granting an additional $284 billion to businesses in need. To prevent fraud and make sure the money ends up in the pockets of those who need it most, the initial rollout will focus on small, community-based lenders and financial institutions, such as credit unions.
This is designed to help small businesses get the money they need to survive the pandemic. However, larger lenders will get access to these funds in the coming days. As for companies that have already received money through the PPP, they must show a 25% loss in revenue to qualify for another round of aid.
The next round from the PPP should help more business owners stay afloat until the end of the pandemic, but some companies may deserve the money more than others.