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Fraud Does Not Pay

Senior Director of Strategic Alliances
LexisNexis Risk Solutions - Government

When we were kids most of us heard at one point or another the words, “crime doesn’t pay.” While a useful parenting ideology, many would say this with tongue in cheek! The fact is for some, crime does appear to pay does pay, and it can pay big time. As the inept bank robber, Virgil Starkwell, said in the movie “Take the Money and Run,” “I think crime pays. The hours are good, you travel a lot.” Michael James DeFrees thought it paid. Because he kept committing fraud, while on federal supervised release for a previous fraud conviction.

Between April 2, 2020, and April 4, 2022, DeFrees used two different business entities to obtain fraudulent Economic Injury Disaster Loans (EIDLs) and Paycheck Protection Program (PPP) loans administered by the SBA. To perpetrate his scheme, DeFrees submitted multiple loan applications to the SBA and two banks in Washington State. In these applications, DeFrees indicated that he was the sole owner of two business entities—Gateway National Corporation, a construction company incorporated in Washington State, and Yacht Harbor, LLC, a real estate development company incorporated in Oregon—and that he, as the sole owner, had never been convicted of any disqualifying criminal offense or recently placed on parole or probation.

In reality, at the time he submitted the applications, DeFrees was on probation following a 2017 felony conviction in the Western District of Washington for falsifying records in a bankruptcy proceeding, for said companies. After fraudulently receiving the loan payouts, DeFrees laundered a portion of the proceeds through a third business entity not listed on the applications, where DeFrees would access the money for his own purposes.

On February 9, 2024, DeFrees was sentenced to two years in prison for COVID-19 relief fraud.
Great job in this investigation by the Small Business Association Office of Inspector General.
Today’s Fraud of The Day is based on article “Developer from Vancouver gets 2 in prison years for COVID-19 relief fraud” published by The Columbian on February 9, 2024

A real estate developer from Vancouver was sentenced Friday to nearly two years in federal prison for fraudulently obtaining COVID-19 relief funds and laundering the money.

Michael James DeFrees, 62, pleaded guilty in October in U.S. District Court in Oregon to bank fraud, money laundering and two counts of wire fraud. In addition to his prison sentence, a judge also ordered him to forfeit $1.2 million and pay $1.3 million in restitution to the U.S. Small Business Administration, according to a U.S. Attorney’s Office news release.

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