Los Angeles-based fraud ring sentenced for multimillion-dollar COVID-19 relief scheme

By Chetan Sehgal, BDO

To help individuals, businesses, and government organizations cope with pandemic challenges, the U.S. government dedicated trillions of dollars of support through programs under the Coronavirus, Aid, Relief, and Economic Security (CARES) Act—but the speed at which relief programs were rolled out lead to increased opportunities to defraud the system.

Using synthetic identities and forged documents, an eight-person fraud ring committed approximately 150 fraudulent loan applications and sought to steal millions in COVID-19 relief funds.

The eight individuals involved in the fraud ring are Richard Ayvazyan, Marietta Terabelian, Artur Ayvazyan, Manuk Grigoryan, Edvard Paronyan, Vahe Dadyan, Arman Hayrapetyan, and Tamara Dadyan.

Taking advantage of the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL)—two programs under the CARES Act—the fraudsters misappropriated over US$20 million* in COVID-19 relief funds by falsifying a number of legal documents:

To apply for loan programs, the defendants created sham businesses, attached fake payroll documents, and forged tax returns to the applications.

Fake, stolen, or synthetic identities were used to open bank accounts for the businesses.

They created fake employer identification numbers (EINs) that were used in phony payroll reports to enhance their legitimacy.

Fake identification documents and corresponding chequebooks, phony business credit cards, and notary stamps and seals belonging to state and federal courts were found during an FBI raid.

The group submitted fictitious documents to lenders and the U.S. Small Business Administration (SBA), a government agency that provides support to entrepreneurs and small businesses.

They used the embezzled funds to pay for down payments on luxury homes in the California cities of Tarzana, Glendale, and Palm Desert, as well as to purchase gold coins, diamonds, jewelry, luxury goods, imported fine goods, and a Harley-Davidson motorcycle.

Three main factors created opportunities for the fraud to take place:

  1. Disaster recovery funds are often put together quickly and are focused on short-term solutions. They are also very vast in scope, with many eligible claimants. To reach those in need quickly, the system relies (at least in part) on the honour system. These factors create the perfect storm for fraudsters to exploit the relief programs.
  2. There was poor investigative due diligence over the identifications used in the loan application process.
  3. Unlike several other U.S. states, California’s loan application system did not have a cross-matching function to verify the identities of individuals. This allowed for the exploitation of fake, stolen, or synthetic identities, as well as the use of fictitious supporting documents such as fake identification, tax documents, and payroll records.

What was the outcome…, check out the details on the BDO site – Covid-19 Relief Scheme Fraud