COVID Feature: One Fraud Too Many

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Two men from California’s San Fernando Valley have been arrested in connection with a fraudulent Paycheck Protection Program (PPP) loan scheme. Business partners Steven Goldstein and Raymond Magana are accused of illegally obtaining more than $1.95 million in PPP loans for their companies by submitting fake tax documents and false employee information. (More unscrupulous individuals in a long line of fraudsters who have been targeting the relief funds intended for struggling Americans impacted by the COVID-19.)

Goldstein and Magana are named in a federal criminal complaint charging them with making false statements to the government, fraud in connection with major disaster or emergency benefits, wire fraud, bank fraud, conspiracy, and false statements to the SBA. (Just a handful of criminal offenses, no big deal.)

The two men are accused of fraudulently receiving hundreds of thousands of dollars in PPP loans and then transferring the received funds into personal bank accounts. Magana initially submitted two applications for PPP loans totaling $1.8 million to U.S. Bank and Customers Bank on May 13 and June 3. (He didn’t waste any time going after funds that became available in March.) 

PPP loans are distributed through the Small Business Administration and intended to help small businesses cover expenses such as rent, mortgages, and overhead costs. These loans are forgivable if a certain percentage is used to make payroll and retain employees throughout the pandemic. (The government is not so forgiving when these funds are used for something else.)  

Magna’s initial two loan applications were submitted on behalf of The Building Circle, a company which was registered in his name. He allegedly claimed that the entity had 40 employees on the monthly payroll. He also submitted fictitious wage and tax documents that falsely reported $4.5 million in annual employee wages.

The company never reported any wages for employees and did not submit a list of employees to the IRS or to the California Development Department, according to their records. Additionally, it was discovered that the address given as The Building Circle’s headquarters actually belonged to a single-family residence in Pico Rivera. (It doesn’t surprise me that every aspect of this scheme was as phony as the fraudsters running it.)  

Ultimately, U.S. Bank and Customers Bank approved one of Magana’s two loan applications and granted $940,416 in funds. These funds were transferred from Magana’s shell company to his personal account.

Magana also allegedly applied for and received a PPP loan of $360,415 for the company, Forward Builders. This was another shell company for which he used fake tax documents and false employee information to fill out his application. He also falsely claimed he had $1.73 million in employee wages. (They tried to get away with what’s called a ‘rinse and repeat’ scheme.)

A bank manager contacted Magana after one of his business accounts had been frozen for suspicious activity. Magana allegedly refused to return the obtained PPP loans and remained adamant that the funds were legally obtained.

The complaint also alleges that Goldstein submitted four different PPP loans to Bank of America. These four fraudulent applications totaled more than $1.2 million on behalf of two other companies where Magana is listed as CEO and Goldstein is listed as manager.

Beagle Real Estate and Antelope Valley Real Estate Development were submitted as the names on the application along with fictitious tax documents and false employee information. Two of those PPP loans were approved, and the companies received a total of $655,000 in PPP loan funds.

Goldstein transferred more than half of the $355,000 received in loans to his personal bank accounts. In total, Magana and Goldstein received more than $1.95 million from various banks as a result of their five fraudulent applications. Magana and Goldstein each face up to 127 years in federal prison if convicted on all charges. (Was it really worth it?)

Today’s Fraud of the Day comes from an article, “Northridge Man Charged With Paycheck Protection Program Fraud,” published by City News Service on October 30, 2020.

NORTHRIDGE, CA — A San Fernando Valley man was arrested Thursday on federal charges alleging he and his business partner fraudulently obtained more than $1.95 million in Paycheck Protection Program loans for their companies by submitting fake tax documents and false employee information to enrich themselves.

Steven R. Goldstein, 36, of Northridge and his business partner, Raymond Magana, 39, of Santa Clarita were named in a federal criminal complaint charging them with making false statements to the government, fraud in connection with major disaster or emergency benefits, wire fraud, bank fraud, conspiracy, and false statements to the Small Business Administration, according to the U.S. Attorney’s Office.

 

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.