Pandemic Relief Fraud, Prosecutions Are Going the Distance-Is this what we expected?

December 2, 2020

By Andrea Moseley

Since late Spring, I have been tracking emerging trends in COVID-19 related fraud. In May, DoJ charged the first individuals in the nation with fraudulently seeking CARES Act SBA Paycheck Protection Loans. As expected, DoJ’s well-funded appetite for prosecuting these types of cases has only intensified since May. In my blog covering the first Paycheck Protection Program (“PPP”) prosecution out of the District of Rhode Island, I suggested that all eyes could be on this court to set the precedent for the types of sentences that will be handed down for PPP fraud around the country. Yet, it is not Rhode Island that made it first to the sentencing finish line. Instead, one of my hometown District Courts has beaten the District of Rhode Island to the punch.

In the last couple of weeks, the Eastern District of Virginia (EDVA a.k.a. the “Rocket Docket”), was among the first jurisdictions to hand down a sentence after a defendant pled guilty to pandemic related fraud. The numbers are telling.

What happened at the scene of the Rocket Docket?

Compared to other jurisdictions, the “Rocket” behind the “Docket” of EDVA still fires rapidly, even on a pandemic court schedule. On June 20, Mr. Tarik Jaafar and his wife, Ms. Monika Jaworska were arrested at John F. Kennedy International Airport as they allegedly attempted to flee to Poland. On August 25, Mr. Jaafar pleaded guilty to conspiracy to defraud the United States. He was sentenced on November 13. Ms. Jaworska is set to be sentenced this Friday.

Mr. Jaafar and his wife were charged nearly two months after the DoJ brought its first PPP charges against David Staveley and David Butziger in Rhode Island. Mr. Butziger pled guilty on September 18 and is not set to be sentenced until December 18. At present, there is no trial date set for Mr. Staveley. In EDVA-Alexandria, U.S. District Judge Claude Hilton sentenced Mr. Jaafar to 12 months in prison and two years of supervised release for defrauding the PPP.

According to court documents, Mr. Jaafar, conspired with his wife, to create four shell companies. The government states that these companies conducted no legitimate business and existed solely as a vehicle to commit fraud. A DoJ press release indicated that between April 13 and May 6, Mr. Jaafar and Ms. Jaworska applied for 18 separate PPP loans in the names of the four shell companies valued at approximately $6.6M, falsely claiming, among other things, that the businesses had employees and they needed the loans to pay their employees’ salaries. The government alleged that Mr. Jaafar and Ms. Jaworska fraudulently induced banks to distribute approximately $1.4M in loans which they intended to use for their personal benefit. The key word here is intended to use.

At sentencing, Mr. Jaafar’s attorney and the United States agreed that his sentencing guidelines were properly calculated to yield a recommended sentence of incarceration between 24 to 30 months.

How was the loss (and therefore the recommended sentence) calculated?

The loss calculation contributing to the 24-30 month range was based upon the amount of loan money that was actually disbursed by lenders based on fraudulent information ($1.4M). While this advisory sentence range may have been legally correct, note that the (loss calculation) range was not based on actual loss of pandemic relief funds. In fact, the pair never got away with the money. Court documents indicate that all of the loan proceeds were frozen before being withdrawn (except $30,000 which was quickly recovered according to court documents). Knowing how to drive down the loss calculation in court is critical to defending these cases.

The United States asked the court to impose a 24 month sentence of incarceration, in part, because of the deterrent effect the sentence would have on other prospective white-collar criminals. The United States stated:

The COVID-19 pandemic is not over. The PPP loan program is coming up on important next step—loan forgiveness. In order for the loans to be forgiven, businesses will certify that they used the funds for their intended purpose —for payroll, rent, and utilities. News of PPP loan fraud will likely reach others who may apply for these loans in the future or may have to certify their own PPP loan for forgiveness. As such, the sentence that the defendant receives may serve as a warning to others to not commit a similar crime.

The United States acknowledged that Mr. Jaafar only withdrew $30k dollars which was recovered and that it appeared he did not intend to use the funds for lavish spending, but instead to support his family.

For the White-Collar defense community, it is critical to note that the United States did not argue that Mr. Jaafar should be sentenced based upon the amount of the loans that he actually applied for, which was $6.4M. This of course, would have been much worse for Mr. Jaafar.

Some prosecutors may try to argue that defendants should be sentenced based upon the amount of loans they applied for, not just on the amount that was actually disbursed. We have to be keenly aware of these potential pitfalls and avoid having our clients’ guidelines calculated based upon the amount of the loan that was applied for and not disbursed.

My experience leads me to believe that if an individual did not plead guilty, did not accept responsibility adequately and/or intended to use funds to buy yachts and escorts, the government may not be so inclined to a more favorable calculation of loss based upon actual disbursements. With aggravating facts, some prosecutors might try for a higher loss calculation and a higher sentence based on the amount of the loans that were requested.

As white-collar litigators we must track the data and make sure to challenge the government on any legally inconsistent loss calculation approaches in PPP fraud cases, regardless of the potentially aggravating facts. Under the sentencing guidelines, what the fraudulently obtained money was spent on is irrelevant. And, the government should not be permitted to take inconsistent (more punitive) legal positions on how to calculate loss simply because an individual chose to go to trial.

Mr. Jaafar’s attorney asked the District Court to sentence him to time-served (about 5 months). The District Judge tacked on a few extra months to the defense recommendation and gave him half of what the United States recommended. Ms. Jaworski’s guidelines have been calculated the same as Mr. Jaafar. However, based on the District Court’s sentence in Mr. Jaafar’s case, her relative role in the offense and because she is the sole caretaker of the couple’s children, the United States is recommending her release after serving approximately 75 pre-sentencing days in custody. How does this case and the sentences imposed compare to other jurisdictions? Stay tuned.

For more analysis, read the Grand Jury Target and get my latest report on investigations, prosecutions and punishment of those of under scrutiny for use of pandemic relief funds.

Stay safe and Happy late Thanksgiving!

Published by Kropf Moseley

Whether you need to take a case to trial, negotiate a resolution without ever setting foot in the courtroom, or navigate a complex public relations problem, we can help. View all posts by Kropf Moseley.