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TEXARKANA, Texas: Officials charged a Liberty County, Texas, man and woman with filing hundreds of fraudulent Economic Injury Disaster Loan (EIDL) applications with the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the Eastern District of Texas, announced U.S. Attorney Stephen J. Cox today.
Clifton Pape, 45, and Sally Jung, 58, both of Cleveland, Texas, allegedly operated a COVID relief fraud scheme known as My Buddy Loans, which garnered them more than $775,000 fraud proceeds and resulted in at least $1.3 million in loss to the United States. A federal criminal complaint charged Pape and Jung with a violation of 18 USC § 1031, major fraud against the United States.
“At a time when small businesses, the engines of our economy in East Texas, most needed the help that the Small Business Administration was rushing to provide, these individuals took advantage of members of the public. They depleted the available resources for small businesses and lining their own pockets with fraudulent gain,” said U.S. Attorney Stephen J. Cox of the Eastern District of Texas.
“We encourage members of the public and the banking community to stay vigilant, watching for fraud as another round of COVID relief begins. It is a priority of the Department of Justice to deter and prosecute this type of fraud.”
“Those responsible for committing fraud against SBA for personal gain will be identified and brought to justice,” said SBA OIG’s Central Region Special Agent in Charge Sharon Johnson. “SBA’s Economic Injury Disaster Loan program provides advance grants and loans to eligible small businesses to mitigate the negative impacts of the pandemic. I want to thank the Department of Justice and our law enforcement partners for their dedication to justice.”
“These charges represent the consequences of exploiting the COVID-19 pandemic by defrauding the EIDL program and thus taking money intended for legitimate businesses in need,” said William Mack, U.S. Secret Service Resident Agent in Charge of the Tyler Resident Office. “The success of this investigation was the direct result of investigative actions taken by the Secret Service and its law enforcement partners. The Secret Service will continue to hold those accountable who seek to exploit CARES Act programs and seek justice for all those who seek to exploit U.S. citizens for their own illicit gain.”
According to court documents filed today in U.S. District Court in Texarkana, Pape and Jung operated under My Buddy Loans. In exchange for $1,082.50, My Buddy Loans took personal identifying information from third parties and promised to file a federal application for a $10,000 agricultural grant. Instead, Pape and Jung filed EIDL applications with the SBA that contained false information. For example, in June and July 2020, Pape and Jung filed 222 EIDL applications, all of which purported to be for businesses with exactly ten employees. The minimum number of employees required to obtain the maximum EIDL advance of $10,000. From those 222 applications, the SBA issued 130 EIDL advancements of $10,000-$1.3 million total.
Pape and Jung used Square’s credit and debit card processing service to charge third parties the fee of $1,082.50. Pape and Jung completed 716 successful charges, obtaining at least $775,000 in payments from third parties. Pape and Jung then transferred the proceeds of the fraud scheme into a bank account they controlled. On one occasion, Pape used the fraud proceeds to pay a traffic ticket. On another occasion, Pape and Jung used more than $3,600 from the fraud scheme to pay for a stay at La Cantera Resort in San Antonio. A picture from that stay shows Pape and Jung celebrating over sparkling wine and other beverages. Under a seizure warrant, agents seized the $505,535.04 in fraud proceeds remaining in the account.
The CARES Act is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans suffering the economic effects caused by the COVID-19 pandemic. One source of the relief supplied by the CARES Act was the authorization or EIDL Advances and low-interest loans to small businesses to meet financial obligations and operating expenses that could not happen had the disaster not occurred. Under the EIDL advance program, loan applicants were eligible for an advance of up to $10,000 if they had ten or more employees, which was forgivable. They based the advance amount on the number of employees reported by a business. An applicant could receive $1,000 per employee up to $10,000. The SBA required an EIDL Advance applicant to provide specific information when the application was made, including the number of employees, revenue, and cost of goods. An EIDL applicant could apply through a third-party processor. Third-party processors were permitted to charge a reasonable fee for their services.
Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud Hotline at 866-720-5721 or via the NCDF Web Complaint Form at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.
A federal criminal complaint is merely an accusation. A defendant is presumed innocent unless and until proven guilty.
Under federal statutes, Pape and Jung face up to ten years in federal prison and a $5,000,000 fine at sentencing. The statutory sentence prescribed by Congress is provided here for information purposes, as the court will determine the sentencing based on the advisory sentencing guidelines and other statutory factors.
The U.S. Secret Service and the SBA Office of Inspector General investigate the case, and Assistant U.S. Attorney Jonathan R. Hornok is prosecuting.