TEXARKANA, Texas (KTAL/KMSS) – A Bowie County man was indicted Thursday by a federal grand jury in Texarkana, Texas on two counts of wire fraud, accused of seeking millions of dollars in forgivable loans for COVID-19 relief under the CARES Act by claiming to have over 400 employees earning wages when he actually had no employees.
That’s according to the U.S. Attorney’s Office for the Eastern District of Texas, which said 32-year-old Samuel Yates, of Maud, filed fraudulent loan applications seeking more than $5 million dollars in loans guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. He was arrested and charged in May 2019 with violations of wire fraud, bank fraud, making false statements to a financial institution, and false statements to the SBA.
“This defendant allegedly sought to steal millions of dollars in loans intended to aid legitimate small businesses grappling with the economic effects of COVID-19,” Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division said at the time. “The department and our law enforcement partners will use all the tools at our disposal to investigate and prosecute frauds against the Paycheck Protection Program.”
According to court documents unsealed Thursday in U.S. District Court in Texarkana following his indictment, Yates allegedly made two fraudulent applications to two different lenders for loans guaranteed by the SBA for COVID-19 relief through the PPP for a business called Lone Star Tuning, which had no operations before January 2020 and generated no revenue.
In the application submitted to the first lender, Yates allegedly sought $5 million in PPP loan proceeds by fraudulently claiming to have over 400 employees with an average monthly payroll of more than $2 million. In the second application, Yates claimed to employ over 100 individuals and was able to obtain a loan over $500,000. With each application, Yates submitted a list of purported employees that he obtained from a publicly available random name generator on the internet. He also submitted forged tax documents with each application.
Yates managed to get the second loan and pulled out a total of $8,000 in two different stops for withdrawals from his Red River Credit Union account before his arrest.
As part of the investigation, law enforcement conducted surveillance on the addresses given for the business and noted that “the observed activity at the listed addresses did not appear to be commensurate with the size of business claimed by the loan application. For example, the structures present at both locations did not appear to be sufficient to support a business with more than 400 employees.” Local law enforcement in Bowie County also told federal investigators that there is no company in the part of the county that Maud occupies which employs 400 people, nor are there structures large enough for such employment.
The CARES Act is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses, through the PPP. In April 2020, Congress authorized over $300 billion in additional PPP funding.
The PPP allows qualifying small-businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent. PPP loan proceeds must be used by businesses on payroll costs, interest on mortgages, rent, and utilities. The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within eight weeks of receipt and use at least 75 percent of the forgiven amount for payroll.
If convicted, Yates faces up to 20 years in prison and a fine of up to $250,000 on each count.