A New England lender’s compliance department played a key role in advancing a federal probe into two men who sought to fraudulently obtain government-subsidized loans intended for small businesses struggling during the novel coronavirus pandemic.
Federal prosecutors charged David Staveley of Andover, Massachusetts, and David Butziger of Warwick, Rhode Island, with bank fraud and other crimes after accusing the pair of falsely claiming to employ dozens of workers at three restaurants and another firm when applying for $540,000 in loans via the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act.
A review of one of the applications by BankNewport’s Bank Secrecy Act officer, tips from a confidential source and interviews by an FBI agent posing as a compliance officer at the lender helped unearth the scheme, prosecutors disclosed Tuesday in announcing the federal government’s first-ever case against a suspected Personal Protection Program fraud.
From April 6 to April 27, according to a 16-page affidavit accompanying a 1-page criminal complaint, Stavely and Butziger submitted applications to the Middletown, Rhode Island-based community bank to obtain forgivable PPP loans for Oakland Beach Restaurant Group LLC, Apponaug Restaurant Group LLC, New Flat Penny LLC and Dock Wireless.
“I can create a bull shit 2020q1 for Oakland beach if you want,” Butziger wrote Staveley in an April 20 email cited in a 16-page affidavit attached to the criminal complaint.
The alleged conspirators applied for the loans under the name of Stavely’s ostensible brother Greg Sanborn, and using the email address greggsanborn0810 @gmail.com.
Stavely also used the name Kurt David Sanborn, according to prosecutors.
But the three restaurants and a fourth venture Butziger and Staveley claimed to operate through the four legal entities had either already shut down for reasons unrelated to the pandemic or were owned and run by other individuals, the investigation found.
Compliance officers at BankNewport learned during an enhanced due-diligence review that Apponaug Restaurant Group LLC, for example, purchased 3376 Post Road, formerly the address of Remington House Inn restaurant, at the end of January, but the venue had ceased operations in November 2018 and never reopened.
“[A] drive by of the property on 04/17/2020 by BSA Officer [showed] that the property is currently in disrepair,” the affidavit cites the EDD review as noting. “There were dumpsters on-site and large red/orangey notices indicating ‘Stop Work’ posted on door and windows of property.”
On April 24 and again on April 27, an undercover FBI agent purporting to work in compliance at BankNewport separately contacted the suspects to discuss their loan applications for Oakland Beach and Dock Wireless.
Staveley, according to the affidavit, lied that the two companies employed nearly 50 individuals and planned to use the more than $120,000 to continue paying their salaries.
Through the PPP, which the U.S. government launched last month as part of efforts to distribute hundreds of billions of dollars in aid to individuals and firms facing financial ruin as a result of COVID-19, small businesses can have their loans forgiven if they use them primarily to continue paying their employees while temporarily closing in response to the health crisis.
Many banks have restricted PPP lending to existing small-business customers out of concern that they lacked the time and resources required to screen others for AML purposes.
Fraudsters often attempt to exploit natural disasters, including hurricanes, earthquakes and the current pandemic, to misappropriate government subsidies and other aid, a compliance executive at a regional lender on the West Coast told ACAMS moneylaundering.com on condition of anonymity.
“Generally, loan fraud has to be detected at the front end as part of the credit-approval process,” the compliance executive wrote in an email. “With the way things have to be processed and the quick timing involved, the PPP program is potentially rife for bad actors to come in.”
The executive said his institution has thus far flagged one account for suspected COVID-19 fraud that is unrelated to PPP loans.
Contact Valentina Pasquali at firstname.lastname@example.org
|Topics :||Anti-money laundering , Counterterrorist Financing|
|Document Date:||May 8, 2020|