When the COVID-19 pandemic reached the U.S. in early 2020, it spurred an instant economic crisis. Non-essential businesses were forced to close their doors for weeks on end as Americans were urged to stay home and keep their distance from one another.
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In response to the crisis, lawmakers passed the CARES Act, which distributed stimulus checks to struggling Americans, boosted unemployment benefits, and provided loans for small businesses that needed a financial lifeline to stay afloat and pay their employees.
Billions of dollars of these taxpayer-funded relief funds were stolen, according to the Justice Department, which has been investigating and prosecuting pandemic relief fraud. As of April last year, it had slapped criminal charges against more than 3,500 defendants for losses of over $2 billion and $1.4 billion had been seized or forfeited.
And the work continues.
Recently it announced 14 people were arrested for allegedly obtaining more than $25 million in COVID-19 relief funds and small business loans with fraudulent applications. A total of 18 defendants were charged, but four are believed to be in Armenia. Fox 11 reported $30 million was stolen.
“This transnational criminal network sought to defraud the government of millions of dollars and almost succeeded,” said Homeland Security Investigations (HSI) Los Angeles Acting Special Agent in Charge John Pasciucco. “HSI is continuing to identify these criminal groups looking to profit from the pandemic and will use all available resources to criminally prosecute or remove them from the country.”
“Today’s enforcement action is intended to send a message to all criminals who take advantage of government programs designed to help those who need them most,” said U.S. Attorney Bill Essayli. “If you took COVID-19 or SBA money you weren’t entitled to, your door could be the next one we visit.”
A major fraud ring uncovered
Fox 11 reported that Vahe Margaryan, a.k.a. “William McGrayan,” 42, was the brains of the fraud ring that applied for $47 million in federal funds and managed to get approved for $30 million. He and his co-conspirators allegedly made false documents, including fake bank statements and tax returns, for sham companies that supposedly needed the money.
Some of the charges the suspects face are conspiracy to defraud the government, wire fraud, bank fraud, and money laundering conspiracy.
“Some of the money was spent on homes and luxury goods, the rest was wired to Armenia, making it harder for the U.S. to trace … Most were born in Armenia, but have become naturalized here in the U.S.,” said Fox 11 reporter Matt Finn.
The press release says law enforcement seized about $20,000 in cash, two money-counting machines, paper cash bands or currency straps in denominations of $2,000 and $10,000, multiple cell phones, multiple laptops, two loaded semi-automatic 9mm handguns, and boxes of 9mm ammunition.
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Crisis profiteering in America
Crisis profiteering is the concept of making money from a crisis situation in an unethical or illegal manner. And it can take on different forms.
In some cases, it can mean exploiting consumers through price gouging. In the case above, it means stealing funds that were earmarked to help struggling consumers and businesses through a major crisis.
As The New York Times reported, lawmakers approved stimulus bills during the pandemic that resulted in roughly $5 trillion of dollars in funding — the largest flood of federal money into the economy in recorded history. An estimated $349 billion went into the Economic Injury Disaster Loan program, while $835 billion went into the Paycheck Protection Program.
The problem is that lawmakers didn’t impose strict requirements for small business aid, allowing it to benefit some companies that didn’t need a financial lifeline at the time. Worse yet, funding was so rushed that lawmakers didn’t have ample time to put adequate fraud measures in place.
In June of 2023, the Small Business Administration’s Office of Inspector General released a report estimating it gave out more than $200 billion in potentially fraudulent pandemic relief funds, including EIDL and PPP loans. All told, that would mean that 17% of all COVID-19 EIDL and PPP funds were distributed to potentially fraudulent actors.
And this isn’t the first time this sort of thing has happened. The U.S. Government Accountability Office said that improper and fraudulent relief payments following Hurricanes Rita and Katrina are estimated at $600 million to $1.4 billion out of the total $6 billion in payments made through the Individuals and Households Program (IHP) program.
The same occurred in the post-9/11 days. Disaster relief funds were made available to New York City residents and businesses impacted by the attack. But relaxed requirements on FEMA’s part "may have increased the likelihood of fraud in the Individual and Family Grant Program," said the Government Accountability Office. Similarly, 2.6% of the $1.6 billion disbursed after Hurricane Sandy may have been "improper or fraudulent."
The problem, of course, is that the more federal relief funds that are lost to fraud, the more money it costs taxpayers. Overall, the federal government loses $233 billion–$521 billion annually to fraud, based on data from 2018-2022.
The challenge is that in situations like the pandemic, major hurricanes, and events like 9/11, time is of the essence. Relief dollars often need to be disbursed quickly, so there’s not ample time to put guardrails in place to prevent fraud.
What the government can try to do, though, is be proactive in identifying those who took advantage of the crisis. While there may not be a 100% recovery rate for stolen funds, the more money the government can recoup, the better.
Anyone with information about fraud involving COVID-19 can report it by calling the National Center for Disaster Fraud (NCDF) Hotline at (866) 720-5721 or via the NCDF Web Complaint Form.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
