Feds bring first fraud charges stemming from coronavirus loans

Washington — The Justice Department said Tuesday it has charged two New England men with fraudulently seeking more than $500,000 in federal aid from the Small Business Association’s Paycheck Protection Program, the first charges related to the program designed to assist struggling small businesses during the coronavirus pandemic.

The men, David Staveley, 52, of Massachusetts, and David Butziger, 51, of Rhode Island, were arrested Tuesday, the FBI said. They were charged with conspiring to make false statements to influence the Small Business Administration and conspiracy to commit bank fraud. Staveley was also charged with aggravated identity theft, and Butziger with bank fraud.

The Justice Department alleges the two men claimed to have dozens of employees on the payroll at four different business entities, but the businesses were not operating before the start of the coronavirus pandemic and did not have salaried workers. One instance involved a business the applicant didn’t own, according to the department.

Federal prosecutors said Staveley sought more than $430,000 in federal assistance and claimed in loan applications that he had dozens of employees across three restaurants he owned. But investigators learned two of the restaurants were not open before the start of the coronavirus pandemic or after. Staveley also allegedly didn’t own or have any involvement with the third restaurant for which he was also seeking aid.

One of the restaurants Staveley owned, in Massachusetts, closed in early March after its liquor license was revoked.

Butziger, meanwhile, is alleged to have filed an application in early April for a $105,000 loan for an entity called Dock Wireless and claimed he had seven full-time employees on payroll. Butziger said the workers were laid off at the end of March, yet continued to work without pay.

But the Rhode Island State Department of Revenue told the IRS it did not have records employee wages were paid in 2020 by either Butziger or Dock Wireless, and several of the purported workers told agents they never worked for either. 

Staveley and Butziger allegedly exchanged emails discussing a scheme to create fraudulent loan applications and supporting records to seek the loans from the PPP, which was created by Congress as part of the $2 trillion coronavirus relief package. Investigators detected the alleged fraud before either man received any funding, prosecutors said.

The loan program is designed to help small businesses with fewer than 500 employees meet payroll and cover other expenses. Treasury Secretary Steven Mnuchin vowed last week to audit every company that receives more than $2 million under the program to certify they were qualified to receive the loans. He said large companies that don’t qualify for loans could face “criminal liability” if they keep the funds.

Congress initially approved $349 billion for the fund, but it was rapidly exhausted. Late last month, lawmakers approved an additional $310 billion for the loan program. As of Friday, nearly $176 billion of the additional funding has been approved.

“Every dollar stolen from the Paycheck Protection Program comes at the expense of employees and small business owners who are working hard to make it through these difficult times,” Assistant Attorney General Brian A. Benczkowski said.