Government Investigation of COVID-19-Related Fraud in North Carolina Continues
In March of 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.2 trillion economic relief bill designed to provide emergency financial assistance to Americans in the wake of the COVID-19 pandemic. Through the CARES Act and other relief legislation (including the Paycheck Protection Program (PPP), the Economic Injury Disaster Loan program (EIDL), Economic Impact Payments, the Provider Relief Fund, Pandemic Unemployment Assistance and Federal Pandemic Unemployment Compensation), the government has made available more than $4 trillion in COVID-19-related aid.
However, according to the government, much of the money has allegedly been misappropriated. The Department of Labor (DOL) estimates that as much as $163 billion may have been paid improperly, with a significant portion attributable to fraud. These claims of rampant fraud have not gone unnoticed. While the Fraud Section of the Department of Justice (DOJ) initially prosecuted these cases, DOJ established a COVID-19 Fraud Enforcement Task Force in May 2021 through which DOJ and other governmental agencies now coordinate their efforts to combat pandemic-related fraud. The government has brought criminal charges against over 1,000 defendants, and thousands of civil and criminal investigations are ongoing. President Biden even recently signed bills extending the statute of limitations for fraud by borrowers under certain COVID-19 loan programs.
In March 2022, the DOJ announced the appointment of Associate Deputy Attorney General Kevin Chambers as director for COVID-19 Fraud Enforcement. In the announcement, Deputy Attorney General Lisa Monaco warned those who sought to “line their own pockets and benefit from the suffering of so many Americans” that “your crimes are not and will not be forgotten.” Chambers noted that the federal government’s ongoing investigations have been bolstered by an “extraordinary amount of data” from state agency partners.
In this climate, even those actors who appropriately filed for COVID-19 relief loans and forgiveness should prepare for increased scrutiny.
Government Enforcement Efforts in North Carolina
The CARES Act is not a penal statute and includes no provisions authorizing criminal enforcement. Instead, DOJ uses pre-existing federal laws to prosecute pandemic-related fraud, such as statutes addressing wire fraud, bank fraud, false statements, tax evasion, false claims and money laundering. These charges range in penalties from five to 30 years imprisonment and/or hefty fines. In North Carolina federal courts, common charges for pandemic-related enforcement include wire fraud and making false statements.
The United States Attorney’s Office for the Western District of North Carolina (WDNC), based in Charlotte and Asheville, has been the most active district in the state with regard to COVID-19 fraud enforcement. In one example, on March 17, 2022, Nkhenge Shropshire was charged with conspiracy to commit wire fraud for requesting over $300,000 in EIDL loans and receiving $45,000, which she allegedly used for personal luxuries like shopping sprees, hotel stays and cars. According to prosecutors, Shropshire also allegedly conspired with others to submit at least 10 fraudulent EIDL applications for fake businesses with falsified information, including the number of employees employed by each business and total gross revenues.
On Jan. 6, 2022, Maurice Kamgaing was sentenced to 33 months in federal prison for filing multiple fraudulent PPP loan applications. He was accused of misappropriating approximately $1.5 million of COVID-19 relief funds for personal use, including stock market investments and real estate purchases.
WDNC has also pursued cases involving much smaller amounts of alleged fraud, including the recent prosecution of Yesenia Rodriguez, who pled guilty to conspiring with another individual to commit wire fraud by fraudulently obtaining approximately $100,000 in pandemic-relief funds, including an EIDL loan for a fake nail and hair salon. She awaits sentencing.
On June 2, 2021, Jasmine Clifton pled guilty to wire fraud for obtaining a fraudulent EIDL loan for almost $150,000 for an online retail clothing company (Jazzy Jas LLC) that she allegedly dissolved several months before applying for the loan. She was accused of using the funds to buy luxury items at numerous diamond and retail stores, including Nordstrom, Neiman Marcus, Louis Vuitton and others.
The United States Attorney’s Office for the Middle District of North Carolina (MDNC), based in Greensboro, has also been active in fraud enforcement, recently sentencing multiple individuals for submission of fraudulent EIDL loan applications. On Feb. 14, 2022, Joseph Cartlidge, David Redfern and Eric McMiller were sentenced to 72 months, 60 months, and 66 months in prison respectively for fraudulently seeking over $2.7 million in PPP and EIDL loans, a portion of which they agreed to provide to the person who recruited them to apply for the loans. The recruiter pled guilty to conspiracy to commit wire fraud in another district. Each defendant was ordered to pay $498,657 in restitution.
The United States Attorney’s Office for the Eastern District of North Carolina (EDNC), based in Raleigh, has also been active in this space. This has included launching a task force to pursue cases related to misuse of COVID-19 funds. EDNC recently sentenced Tristan Bishop Pan to 20 months in prison for submitting 14 fraudulent PPP loans seeking over $6.1 million and receiving over $1.7 million for various entities with names related to the popular show “Game of Thrones,” including White Walker, Khaleesi and the Night’s Watch. According to the government, the fraudulent applications included false information about employees and payroll expenses and were supported by falsified tax filings.
On June 29, 2022, EDNC announced an indictment charging Abhishek Krishnan with theft of government property and aggravated identity theft for his receipt of approximately $40,650 in pandemic unemployment assistance allegedly obtained by using other individuals’ identities in his fraudulent application for unemployment insurance benefits funded by the federal government in response to the pandemic.
Tanisha Palvia is a partner at Brooks Pierce. She represents individuals and organizations facing governmental investigations, white-collar criminal charges, and civil litigation. She also conducts internal investigations on a variety of criminal and employment law issues.
Claire O'Brien is an associate at the firm. She advises individuals and organizations on a myriad of regulatory compliance issues and conducts and advises on internal investigations, with a focus on healthcare matters.
 18 U.S.C. § 1343.
 18 U.S.C. § 1344.
 18 U.S.C. §§ 1001, 1014.
 26 U.S.C. § 7201.
 31 U.S.C. §§ 3729-3733.
 18 U.S.C. §§ 1956, 1957.