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Maui Economy, 6 Months After Wildfire, Is Still Reeling

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Twisted and charred aluminum mixed with shards of glass still lines the floor of the industrial warehouse where Victoria Martocci once operated her scuba diving business. After a wildfire tore through West Maui, all that remained of her 36-foot boat, the Extended Horizons II, were a pair of engines.That was six months ago, but Ms. Martocci and her husband, Erik Stein, who are weighing whether to rebuild the business, which he started in 1983, said the same questions filled their thoughts. “What will this island look like?” Ms. Martocci asked. “Will things ever be close to being the same?”In early August, what began as a brush fire burst into the town of Lahaina, a popular tourist destination, all but leveling it, destroying large swaths of West Maui and killing at least 100 people in the nation’s deadliest wildfire in more than a century.The local economy remains in crisis.Rebuilding the town, according to some estimates, will cost more than $5 billion and take several years. And tense divisions still remain over whether Lahaina, whose economy long relied almost entirely on tourism, should consider a new way forward.Debates about the ethics of traveling to decimated tourist destinations played out on social media after an earthquake in Morocco and wildfires in Greece last year. But the situation is particularly dire for Maui.State and federal officials scrambled last summer to find shelter for thousands of residents who had lost their homes, relocating people to local hotels and short-term rentals where many still live, often sharing a wall with vacationing families whose realities feel far from their own. Other displaced residents live in tents on the beach, and some restaurant owners pivoted to working out of food trucks.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    How to Catch Pandemic Fraud? Prosecutors Try Novel Methods.

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    Federal prosecutors are scrambling to recoup billions of dollars in pandemic aid from people who falsely obtained funds from government programs that were intended to keep the economy afloat during the Covid shutdowns.In some districts, prosecutors are screening those suspected of a violent crime for potential involvement in pandemic fraud schemes. Other investigators are putting together “strike force teams” to unravel the most sophisticated enterprises or leaning on local officials to steer them toward potential fraudsters in their areas.The moves come as the federal government looks for novel ways to root out what officials say was an enormous number of fraudulent claims that were submitted and approved during the pandemic. Many of the programs that were set up to dole out relief money required minimal proof from those seeking funds and approved applications quickly in order to pump money into the economy.While the exact amount that was stolen is unknown, the Small Business Administration’s inspector general estimated that more than $200 billion — or at least 17 percent of the roughly $1.2 trillion in pandemic loans the agency doled out — was disbursed to “potentially fraudulent actors.” Nearly $30 billion has been seized or returned to the agency, according to the office.Thousands of investigations are still underway. The Labor Department’s inspector general has about 160,000 open investigations focused on unemployment-insurance fraud from the pandemic.But rooting out those who defrauded pandemic-relief programs has proved difficult, given the sheer amount of fraud. So far, the federal government has charged more than 2,230 defendants with schemes and offenses related to pandemic fraud, according to the Justice Department. More than 550 convictions have been made related to fraud involving funds from the Paycheck Protection Program and the Economic Injury Disaster Loan program, according to the S.B.A.’s office of inspector general.Michael Galdo, the acting director of Covid-19 fraud enforcement at the Justice Department, said there was a “wide variety of different approaches across U.S. attorney’s offices,” which have a large amount of freedom to determine the most effective way to catch fraudsters.Power in Local ConnectionsIn the Northern District of Mississippi, officials at the U.S. attorney’s office are traveling to individual counties and asking local officials to review lists of people who received pandemic loans. That approach can help prosecutors catch recipients they might not otherwise find, since local officials typically know, for example, whether someone owned a business, overstated the number of employees on an application or listed an address that was actually an empty lot.Clay Joyner, the U.S. attorney for the district, said the approach had helped uncover more cases than the district had the resources to criminally prosecute, so the office is pursuing civil cases in many investigations that involve smaller loans.“Thousands of the loans are for those lower-tier amounts,” Mr. Joyner said. “If you were trying to pursue all of these cases criminally, it would almost be impossible.”The office’s civil division has reached over 200 judgments, more than any other district in the country. Officials have recovered over $2.2 million so far, although they expect to recover more than $23 million through their civil judgments so far.Mr. Joyner said the office had also pursued civil cases because the financial consequences could be severe. Under a federal law commonly used for civil fraud cases, individuals could be required to pay three times the amount of a stolen loan, in addition to penalties and fees. Although the money usually has been spent already, most fraudsters agree to return the full amount through a repayment plan, Mr. Joyner said.Officials said they did not initially plan to pursue more civil cases, but they realized they could take advantage of the district’s small-town, rural nature after an attorney in the office recognized the names of loan recipients and suspected that many did not own businesses because he had grown up in the same area.Scrutiny of Other SuspectsOfficials at the U.S. attorney’s office in Maryland have started screening all new suspects of violent crime and illegal possession of firearms for pandemic fraud. Erek L. Barron, the U.S. attorney for the district, said the method had allowed officials to pursue investigations they normally would not have the capacity to take on.“We can’t take each and every case, so we have to be very thoughtful about the dollar amounts and the individuals that we investigate and prosecute,” he said.Since officials instituted the process in 2021, more than 60 percent of screened cases have turned up reasonable suspicion of pandemic-related fraud, Mr. Barron said, adding that the overlap had “presented an opportunity to go after two priorities in one.”“Those who are involved in violence, it’s not a stretch to imagine that they’re also willing participants in other wrongdoing,” he said.One recent case involved Jerry Phillips of Capitol Heights, Md., who was sentenced to seven years in federal prison after admitting to obtaining more than $1 million in relief funds using fake and stolen identities. After he was arrested and officials searched his residence, they recovered four “ghost guns,” including one he had illegally modified into a machine gun. Mr. Phillips had purchased the guns online, in part with an alias and address he used for fraud schemes, according to court documents.Special Teams for FraudThe Justice Department has also established “strike force teams” in several U.S. attorney’s offices. Phillip A. Talbert, the U.S. attorney for the Eastern District of California, said its joint strike force with the Central District of California used a data-driven approach to identify large fraud schemes. Analysts from the F.B.I. and at least five other federal agencies work with the offices, searching databases for patterns of suspicious activity.“If you just looked at one application or a couple applications, it may not be apparent that’s just a little piece of the fraud scheme,” Mr. Talbert said.The office’s earlier fraud cases originated mostly from referrals by banks and state and federal agencies. One case involved Andrea M. Gervais of Roseville, Calif., who was sentenced to 36 months of probation after pleading guilty to theft of government money in a scheme involving more than 90 fraudulent unemployment claims. The case began after investigators discovered someone had filed a claim using the identity of a sitting U.S. senator, which was processed for payment. The official was Senator Dianne Feinstein of California, according to a person familiar with the investigation. Senator Feinstein’s office confirmed that a person had used the senator’s name to file fraudulent unemployment claims, but it declined to provide additional comment.Mr. Talbert said the strike force would help the office investigate cases that are harder to detect, such as those involving international fraud rings.Dan Fruchter, an assistant U.S. attorney in the Eastern District of Washington, said officials initially focused on cases that were less complicated to prove, such as those involving fake businesses, but he also expected the office to prosecute more complex cases in the coming years. Investigations can take longer if people with legitimate businesses overstated facts in their applications or made improper purchases, for instance.Since forming its own strike force last year to strengthen coordination with federal law enforcement, the office has charged 19 defendants and recovered about $4 million.A Broad SweepIn addition to U.S. attorney’s offices, hundreds of people across more than 40 offices of inspectors general are working on pandemic fraud investigations, as are agents from the F.B.I., the Secret Service, the Postal Inspection Service, Homeland Security Investigations and Internal Revenue Service Criminal Investigation.Brian Miller, the country’s special inspector general for pandemic recovery, said he expected to uncover new leads over the next few years as more borrowers defaulted on pandemic loans, a “red flag” for potential fraud. He said default rates on interest payments for some programs had already been alarmingly high, and he urged Congress to fund the office past 2025, when many final payments are due.Michael Horowitz, the Justice Department’s inspector general and chairman of the Pandemic Response Accountability Committee, which is composed of 20 agency inspectors general, said investigators had prioritized mostly multimillion-dollar fraud cases, but he anticipated prosecutors would pursue more lower-dollar cases in the coming years.“They’re still big numbers,” Mr. Horowitz said. “In any other time, they would be viewed as bigger frauds.” More

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    Restaurant Chain Franchises Face Scrutiny From the FTC

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    Troubles at the restaurant chain Burgerim highlight concerns about whether franchisees need more protection in their contracts with franchisers.“Making It Work” is a series about small-business owners striving to endure hard times.When Kenneth Laskin flew to California to meet with executives at Burgerim, a start-up chain of restaurants, he was made to feel not just like another prospective franchisee, but like part of a family.The company’s executives, he said, made a point one evening of highlighting their common Jewish faith by praying with him in Hebrew.At the time, in 2017, Mr. Laskin believed he was being offered a plum deal. He paid $50,000 for the right to open up as many Burgerim franchised restaurants as he wanted in Oregon. “I got an entire state,” Mr. Laskin recalled.Today, Burgerim has run into trouble, leaving a trail of financial problems, a lawsuit by the Federal Trade Commission and broader regulatory scrutiny of whether protections for franchisees like Mr. Laskin are adequate.The challenges highlighted by Burgerim come as franchising continues to grow as a way that people are choosing to start small businesses.There has been rising concern about whether franchisees need more protection in their contracts with franchisers. That concern has found a sympathetic ear in the Biden administration and in several state legislatures, and has resulted in multiple proposed limits on franchisers’ powers.In the end, Mr. Laskin opened only one Burgerim restaurant, in Eugene, Ore., which closed in 2020 during the pandemic. Since then, Mr. Laskin has been depleting his savings to pay the bills.Burgerim, which boasted of having inventive high-quality burgers, has been criticized by former franchisees for making grand promises and poor disclosure about business risks. Of the more than 1,500 franchises Burgerim sold, most never opened, the commission said in a lawsuit that the agency filed last year against the company and its founder in U.S. District Court in California.Peter Bronstein, a lawyer for Oren Loni, who was the company’s principal executive in the United States, said that Burgerim made some business mistakes but that it was often trying to help its franchisees succeed. The two sides have been in mediation, according to the court file. Kenneth Laskin believed he got a plum deal to start as many Burgerim franchised restaurants as he wanted in Oregon. He ended up opening only one, which closed during the pandemic.Zack Wittman for The New York TimesEven as the pandemic was still bearing down, the number of franchised establishments in the country grew 2.8 percent in 2021 and 2 percent in 2022. That number is expected to increase an additional 2 percent this year, bringing the total to 805,436 franchises, according to the latest data released by the International Franchise Association, an industry group.As the franchising network expands, so does its contribution to the broader economy. Franchises employed 8.4 million people last year, a 3 percent increase from 2021.There is historical evidence, according to the International Franchise Association, that the first U.S. franchise dates back to Ben Franklin, who created a network of printing partnerships.Franchising took root in the American business landscape in the decades following World War II, with the growth of franchised brands like Howard Johnson’s hotels.Sam Falk/The New York TimesToday a fundamental symbiosis drives the business model: Franchisees pay an upfront fee to an franchiser like Dunkin’ Donuts or Applebee’s, which gets them access to all of that brand’s suppliers, advertising and technology. The franchisee can lean on these established systems to get their business up and running quickly rather than having to start from scratch. And the franchiser, in turn, receives the franchising fee, typically tens of thousands of dollars, in addition to a regular royalty payment from the franchisee.“Franchising has always been an on-ramp for the middle class to open their own business,” said Charlie Chase, the chief executive of FirstService Brands, a franchiser of home renovation and painting services.Over the years, Mr. Chase, who has served on the board of directors of the International Franchise Association, said he had helped hundreds of successful franchisees get their start. “We have created a lot of millionaires,” he said.Still, Mr. Chase said he was concerned about how some franchisees were being pushed into businesses without understanding all of the risks.He blames aggressive internet advertising for some of this (Mr. Laskin learned about Burgerim from a Facebook advertisement, for example), and also a network of third-party brokers that often push prospective franchisees to buy multiple franchises at a time.The Federal Trade Commission, under the leadership of Lina Khan, is looking broadly at industry practices including disclosure and issues such as franchisers’ unilaterally changing the terms of an agreement with a franchisee.“Franchising can be a good business model, but it can also lead to a lot of harm,” Elizabeth Wilkins, the director of the commission’s Office of Policy and Planning, said. “We are concerned about instances where the promise does not match with reality. We believe there is a significant gap that is worth our investigation.”In the case against Burgerim,  federal officials said that the company executives told franchisees they would refund their franchise fees if their business did not open, but that many people never got their money back. Mr. Bronstein, the lawyer for Mr. Loni, said offering refunds “was not the best way to run a business.”In the years since the 2008 financial crisis and mortgage meltdown, regulators have bolstered protections for consumers by improving disclosure by banks and banning certain fees they can charge. But small businesses, including franchisees, have not benefited from the same extensive regulatory scrutiny.“There is a view in the consumer protection world that small businesses do not get the same level of protections as other consumers,” Samuel Levine, the director of the F.T.C.’s Bureau of Consumer Protection, said. “Yet, consumers and small businesses, including franchisees, face many of the same challenges. That is something we are trying to address.”The F.T.C., under the leadership of Lina Khan, above, is looking broadly at industry practices at franchises including disclosure about business risks. Saul Loeb/Agence France-Presse, via Getty ImagesAs part of that effort, the Federal Trade Commission is looking at how to apply laws like the Robinson-Patman Act, an antitrust law that prevents large corporations from using discriminatory pricing to take advantage of small businesses. The agency also has proposed a rule banning noncompete clauses in employment contracts and may consider limiting the use of noncompete clauses in franchise agreements.When Mr. Laskin bought a franchise, he was not looking to become a millionaire, but rather to build a stable middle-class life.He opened his sole Burgerim store in Oregon in September 2019.But the problems started soon after his grand opening, Mr. Laskin said. Burgerim had not established a reliable food distribution system in Oregon, he said, forcing Mr. Laskin to fend for himself to supply his restaurant. In trying to help new locations get off the ground, the company never collected royalties from the franchisees, which limited its ability to support its restaurant network over the long term, Mr. Bronstein said. Still, he added, there are many Burgerim restaurants that operated successfully.Mr. Laskin kept the business going during the pandemic by offering take out. But he couldn’t find people to work during the lockdowns, which meant he and his wife ran the entire operation themselves.Mr. Laskin, who has severe back pain from years of restaurant work, hoped a franchise would offer him the chance to delegate work to employees and spare his back.But some days, Mr. Laskin would return from the burger restaurant at night unable to walk the final few yards up his driveway because of the pain from standing on his feet all day.The Burgerim leadership, Mr. Laskin said, provided no support during the pandemic.A Burgerim restaurant in Walnut Creek, Calif., last year.Gado/Getty ImagesHe closed his restaurant in May 2020 and moved to Florida. Mr. Laskin, 57, said that his back problems limited the type of work he can do and that it had been difficult finding work after his burger business closed.The struggles of the former Burgerim franchisees were brought to light in 2020 by the publication Restaurant Business, which focuses on the food service industry, in a series of articles.Some franchisees say improving disclosure or increasing regulations on fee structures will not be a panacea in rooting out the industry’s troubled actors.“Transparency is a great thing, but I am not sure more disclosure is going to change any outcomes,” said Greg Flynn, the founder and chief executive of Flynn Restaurant Group, the largest franchisee in the country with 2,400 locations and 73,000 employees, operating brands like Taco Bell, Pizza Hut and Panera.“There are a lot of stories of franchisees buying into a system and then it goes badly for them,” he added. “I would just suggest that they might have had a similar experience outside of a franchise system.”Mr. Laskin says it is not just bad timing or circumstances that were to blame. “The system is fundamentally crippled,’’ he said. “There is too much secrecy. It shouldn’t be this difficult.” More

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    Prosecutors Struggle to Catch Up to a Tidal Wave of Pandemic Fraud

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    Investigators say there was so much fraud in federal covid-relief programs that — even after two years of work and hundreds of prosecutions — they’re still just getting started.In the midst of the pandemic the government gave unemployment benefits to the incarcerated, the imaginary and the dead. It sent money to “farms” that turned out to be front yards. It paid people who were on the government’s “Do Not Pay List.” It gave loans to 342 people who said their name was “N/A.”As the virus shuttered businesses and forced people out of work, the federal government sent a flood of relief money into programs aimed at helping the newly unemployed and boosting the economy. That included $3.1 trillion that former President Donald J. Trump approved in 2020, followed by a $1.9 trillion package signed into law in 2021 by President Biden.But those dollars came with few strings and minimal oversight. The result: one of the largest frauds in American history, with billions of dollars stolen by thousands of people, including at least one amateur who boasted of his criminal activity on YouTube.Now, prosecutors are trying to catch up.There are currently 500 people working on pandemic-fraud cases across the offices of 21 inspectors general, plus investigators from the F.B.I., the Secret Service, the Postal Inspection Service and the Internal Revenue Service.The federal government has already charged 1,500 people with defrauding pandemic-aid programs, and more than 450 people have been convicted so far. But those figures are dwarfed by the mountain of tips and leads that investigators still have to chase.Agents in the Labor Department’s inspector general’s office have 39,000 investigations going. About 50 agents in a Small Business Administration office are sorting through two million potentially fraudulent loan applications.Officials already concede that the sheer number of cases means that some small-dollar thefts may never be prosecuted. Earlier this month, President Biden signed bills extending the statute of limitations for some pandemic-related fraud to 10 years from five, a move aimed at giving the government more time to pursue cases. “My message to those cheats out there is this: You can’t hide. We’re going to find you,” Mr. Biden said during the signing at the White House.Investigators say they hope the extra time will allow them to ensure that those who defrauded the government are ultimately punished, restoring a deterrent that had vanished in a flood of lies and money.President Biden signed bills extending the statute of limitations for some pandemic-related fraud to 10 years.Pete Marovich for The New York Times“There are years and years and years of work ahead of us,” said Kevin Chambers, the Department of Justice’s chief pandemic prosecutor. “I’m confident that we’ll be using every last day of those 10 years.”The federal government provided about $5 trillion in relief money in three separate legislative packages — an enormous sum that is credited with reducing poverty and saving the country from a prolonged, painful recession.But investigators say that Congress, in its haste to get money out the door quickly, designed all three packages with the same flaw: relying on the honor system.For example, an expanded unemployment benefit gave workers an extra $600 per week in federal jobless funds on top of what they received from their state. The program was funded by the federal government but administered by states, which often had loose rules around qualifying. Applicants did not need to provide proof they had lost income because of Covid-19; they simply had to swear it was true.A similar we’ll-take-your-word-for-it approach was used in two loan programs run by the Small Business Administration.Millions of Americans sought unemployment benefits during the height of the pandemic.Hiroko Masuike/The New York TimesThey were the Paycheck Protection Plan, in which the government guaranteed loans made by private lenders, and the Economic Injury Disaster Loan program, in which the government itself gave out loans and smaller advance grants that didn’t have to be repaid. In both, the government trusted businesses to self-certify that they met key requirements.Both the Labor Department and the Small Business Administration said they tried to screen those claims — and that they did reject billions of dollars’ worth of applications that didn’t make sense. But that wasn’t enough.In some cases, the programs missed schemes that were comically easy to spot: In one instance, 29 states paid unemployment benefits to the same person. In another, a Postal Service employee got $82,900 loan for a business called “U.S. Postal Services.” Another individual got 10 loans for 10 nonexistent bathroom-renovation businesses, using the email address of a burrito shop.In the Paycheck Protection Plan, private banks were supposed to help with the screening, since in theory they were dealing with customers they already knew. But that left out many small businesses, and the government allowed online lenders to enter the program. This year, University of Texas researchers found that some of those “fintech” lenders appeared less diligent about catching fraud.As the virus shuttered businesses and forced people out of work, Congress and federal agencies sent relief money into programs aimed at supporting the jobless and helping the economy stay afloat.Brittainy Newman/The New York TimesIn another case, a mother and daughter in Westchester County, N.Y., stand accused of turning fraud into a franchise — helping other people cook up fake businesses in order to get loans from the Economic Injury Disaster program.Andrea Ayers advised one client to tell the government she ran a baking business from home, although she was not a baker, prosecutors said.“You bake,” Ms. Ayers texted to the client, adding four laugh-crying emojis, according to charging documents.“Lol,” the client wrote back.The scheme was designed, prosecutors said, to take advantage of the Small Business Administration’s advance grant program, which provided applicants up to $10,000 up front while the agency decided whether to award an a larger loan. Even if the loan was rejected, in many cases the applicant could still keep the grant.Prosecutors said that Ms. Ayers’s daughter, Alicia Ayers, texted another client that the small size of the grants meant they were unlikely to be punished: “10k is not enough for jail time lol.”The government charged both Ayerses with wire fraud. They have pleaded not guilty. Their lawyers did not respond to requests for comment.In some corners of the internet, schemes to defraud were discussed in chat rooms and YouTube videos, where scammers offered to help for a cut of the proceeds. Some used the money on necessities, like mortgage bills or car payments. But many seemed to act out of opportunism and greed, splurging on a yacht, a mansion, a $38,000 Rolex or a $57,000 Pokemon trading card.Vinath Oudomsine bought a $57,000 Pokemon card after receiving a pandemic loan from the Small Business Administration for a nonexistent business.U.S. Attorney’s Office for the Southern District of GeorgiaVinath Oudomsine bought the Pokemon card in January 2021, after receiving a loan from the Small Business Administration for a nonexistent business. He pleaded guilty to defrauding the loan program in October 2021, leaving the U.S. government responsible for selling the card.Pandemic fraud became such an open secret that it ceased to be much of a secret at all. In September 2020, a California rapper named Fontrell Antonio Baines, who performs as Nuke Bizzle, posted a music video on YouTube, bragging in detail about how he’d gotten rich by submitting false unemployment claims. His song was called “EDD,” after California’s Employment Development Department, which paid the benefits.“I just seen 30 cards land in one day. Got straight on the phone and activate,” Mr. Baines rapped in the song, flashing cash and envelopes with preloaded debit cards from the state.“Unemployment so sweet,” Mr. Baines said.All three of those programs are now over. There is no official estimate for the amount of money that was stolen from them — or from pandemic-relief programs in general. The Justice Department has charged people with about $1 billion in fraud so far, and is investigating other cases involving $6 billion more, investigators said.But other reports have suggested the real number could be much higher. One official said the total of “improper” unemployment payments could be more than $163 billion, as first reported by The Washington Post. In the Economic Injury Disaster Loan program, a watchdog found that $58 billion had been paid to companies that shared the same addresses, phone numbers, bank accounts or other data as other applicants — a sign of potential fraud.“It’s clear there’s tens of billions in fraud,” said Michael Horowitz, the chairman of the Pandemic Response Accountability Committee, which includes 21 agency inspectors general working on fraud cases. “Would it surprise me if it exceeded $100 billion? No.”The effort to catch fraudsters began as soon as the money started flowing, and the first person was charged with benefit fraud in May 2020. But investigators were quickly deluged with tips at a scale they’d never dealt with before. The Small Business Administration’s fraud hotline — which had previously received 800 calls a year — got 148,000 in the first year of the pandemic. The Small Business Administration sent its inspector general two million loan applications to check for potential identity theft. At the Department of Labor, the inspector general’s office has 39,000 cases of suspected unemployment fraud, a 1,000 percent increase from prepandemic levels.But prosecutors face a key disadvantage: While fraud takes minutes, investigations take months and prosecutions take even longer.Mr. Baines, who detailed his jobless benefit scheme on YouTube, was arrested in September 2020, when Las Vegas police found other people’s unemployment-benefit cards in his car. Mr. Baines pleaded guilty to mail fraud last month. His attorneys declined to comment.Fontrell Antonio Baines, a rapper who performs as Nuke Bizzle, posted a video in which he bragged about getting rich by submitting false unemployment claims.Nuke Bizzle, via YouTubeHannibal Ware, the Small Business Administration inspector general, said his office has tried to focus on cases involving large thefts, career criminals or ringleaders who organized a fraud operation.“Only about 50 working field agents, right? So how do I take one of my agents off of a $20 million case to work a $10,000 case?” said Mr. Ware, who is known as Mike. “Because they will tell me, ‘Mike, the work is the same.’”That has allowed many individuals who took advantage of government programs to go unpunished. Despite ample evidence of people fraudulently obtaining $10,000 advance grants, Mr. Ware’s office has not sought charges for cases involving only a single grant, falsely obtained. It would cost more than $10,000 just to investigate each one.In all, that program awarded 3.9 million loans totaling about $389 billion, on top of $27 billion in grants that did not have to be repaid, according to the Small Business Administration. Many of the allegations of fraud in the grants program date to the first weeks of the pandemic, when the government gave out 5.8 million advance grants worth $19.7 billion in just over 100 days. In that program, fraud was easy to pull off, according to a government watchdog, which cited numerous loans given to businesses that were ineligible for funding.Mr. Ware said that he recently limited his agents to working 10 cases at a time, telling them, “You’re killing yourself. I have to protect you from you.”In some cases, lawyers for those charged with committing pandemic fraud have sought to argue that their clients should be judged less harshly for stealing because the government made it so easy.The government “was handing out money with no checks and a lot of people took advantage of that,” Ashwin J. Ram, an attorney for convicted fraudster Richard Ayvazyan, told The New York Times in November.“It’s a honey trap,” he added. “Richard Ayvazyan fell into that trap.” Mr. Ayvazyan was sentenced to 17 years in prison for participating in a ring that sought $20 million in fraudulent loans.Richard Ayvazyan was convicted in a scheme to steal $20 million in Covid-19 relief funds.Gary Coronado/Los Angeles Times, via Getty ImagesIn the case of Mr. Oudomsine, the Pokemon card purchaser, his lawyers argued in March that a judge should be lenient in deciding his sentence because the fraud had taken hardly any time at all.“It is an event without significant planning, of limited duration,” said lawyer Brian Jarrard, who was Mr. Oudomsine’s attorney at the time.That didn’t work.U.S. District Judge Dudley H. Bowen Jr. sentenced Mr. Oudomsine to three years in prison, more than prosecutors had asked for, to “demonstrate to the world that this is the consequence” of fraud, according to a transcript of the sentencing.Now, Mr. Oudomsine is appealing, with a new lawyer and a new argument. Deterrence, the new lawyer argues, is moot here because the pandemic-relief programs are over.“There’s no way to deter someone from doing it, when there’s no way they can do it any longer,” said David Rafus, Mr. Oudomsine’s new lawyer.Biden administration officials say they’re trying to prepare for the next disaster, seeking to build a system that would quickly check applications for signs of identity theft.“Criminal syndicates are going to look for weak links at moments of crisis to attack us,” said Gene Sperling, the White House coordinator for pandemic aid. He said the White House now aims to build an ongoing system that would detect identity theft quickly in applications for aid: “The right time to start building a stronger system to prevent identity theft is now, not in the middle of the next serious crisis.”In the meantime, the arrests go on.Last week, prosecutors charged a correctional officer at a federal prison in Atlanta with defrauding the Paycheck Protection Program, saying she had received two loans totaling $38,200 in 2020 and 2021. The officer, Harrescia Hopkins, has pleaded not guilty. Her attorney did not respond to a request for comment.“You can’t have a system where crime pays,” said Mr. Horowitz, of the federal Pandemic Response Accountability Committee. “It undercuts the entire system of justice. It undercuts people’s faith in these programs, in their government. You can’t have that.”Seamus Hughes contributed reporting. More

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    Biden Highlights Small-Business Help, as Problems Persist With Lending Program

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    President Biden visited a Black-owned flooring company as he continued his weeklong push to highlight the $1.9 trillion economic relief package.President Biden dropped by a flooring company in the Philadelphia suburbs on Tuesday to promote an assortment of measures in his $1.9 trillion aid package that are aimed at helping small employers and their workers endure the pandemic’s economic shocks.But Mr. Biden’s most immediate and sweeping small-business initiative — changes he made last month to the Paycheck Protection Program — has been mired in logistical challenges. With the relief program scheduled to end in just two weeks, the effect of his modifications will be blunted unless Congress extends it.Last month, Mr. Biden abruptly altered the rules of the $687 billion program to make business owners who employ only themselves eligible for more money. The move was intended to address a clear racial and gender disparity in the relief effort: Female and minority owners, who are much more likely to run tiny businesses than larger ones, were disproportionately hobbled by an earlier rule that based the size of sole proprietors’ loans on their annual profit.Many companies were shut out of the program because of that restriction, while others got loans as small as $1. The administration switched to a more forgiving formula that lets those businesses instead use their gross income, a change that significantly increased the money available to millions of business owners. Its implementation, though, has been a mess.The program’s government-backed loans are made by banks. The largest lender, JPMorgan Chase, refused to make the change, saying it lacked the time to update its systems before March 31, the program’s scheduled end date. The second-largest lender, Bank of America, decided to update all of its applications manually, causing anxiety and confusion among its borrowers. Wells Fargo released its revised application on Tuesday and told borrowers with pending applications that they had just three days to reapply using the new form.Compounding the problem is that Mr. Biden’s change was not retroactive, which has prompted backlash from the hundreds of thousands of borrowers who got much smaller loans than they would now qualify for. Many have used social media or written to government officials to vent their anger.JagMohan Dilawri, a self-employed chauffeur in Queens, got a $1,900 loan in February. Under the new rules, he calculates that he would have been eligible for around $15,000. That wide gulf frustrated Mr. Dilawri, who has struggled to keep up on his mortgage, car loan and auto insurance payments since the pandemic took hold.“When the Biden administration came, they said, ‘We will be fair with everyone,’” he said. “But this is unfair.”Officials at the Small Business Administration, which manages the program, said only Congress could fix that disparity. Absent legislative action, loans that were completed before the rule was revised “cannot be changed or canceled,” said Matthew Coleman, an agency spokesman.On Tuesday, the Senate confirmed Mr. Biden’s nominee to run the Small Business Administration, Isabel Guzman, by an 81-to-17 vote.Despite the concerns, Mr. Biden was met with praise in Chester, Pa., when he visited Smith Flooring, a Black-owned business that supplies and installs flooring. White House officials said the shop cut payroll over the last year, from 22 union employees to 12, after revenues declined by 20 percent during the pandemic. It has survived, the officials said, thanks in part to two rounds of loans from the Paycheck Protection Program, which Congress established last year during the Trump administration to help small businesses.“This is a great outfit. This is a union shop,” Mr. Biden said in brief remarks. Its employees, he said, “work like the devil, and they can make a decent wage, a living wage.”The owners of Smith Flooring, Kristin and James Smith, secured their second loan from the program as part of one of the Biden administration’s changes, which created a two-week exclusive period for certain very small businesses to receive loans. They thanked Mr. Biden for his efforts and for visiting Chester.Mr. Biden’s aid bill, signed last week, added $7 billion to the program and funded others to help struggling businesses, including a $28 billion grant fund for restaurants. The law also set aside additional money for other relief efforts run by the Small Business Administration, including a long-delayed grant program for music clubs and other live-event businesses, which the agency said would start accepting applications early next month.Lenders are scrambling to carry out the administration’s changes to the Paycheck Protection Program and finish processing a flood of applications before March 31. The American Institute of Certified Public Accountants called the deadline “unrealistic,” and 10 banking groups sent a letter to lawmakers urging Congress to give them more time.Advocacy groups are also calling, with increasing urgency, for both an extension and a fix to make the rule change for sole proprietors retroactive.Mr. Biden met with the owners of Smith Flooring, Kristin and James Smith, in Chester, Pa., on Tuesday.Doug Mills/The New York Times“We absolutely need those changes,” said Ashley Harrington, the federal advocacy director at the Center for Responsible Lending. In December, Congress made retroactive changes to Paycheck Protection Program loans for farmers that allowed those borrowers to recalculate and increase previously finalized loans..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.“To have that change be made for one group and not be made for another — especially for a group that has so many Black and Latino business owners that have struggled so much in this crisis — really raised alarms and red flags for us,” Ms. Harrington said.Some key Democratic lawmakers said they were willing to extend the date. Representative Nydia M. Velázquez, a New York Democrat who leads the House Small Business Committee, said she was working with the Small Business Administration and congressional Republicans “to find a path forward, whether that be through agency action or additional legislation.”“For those sole proprietors who applied before the new rules took effect, we understand their concerns and are eager to work with Congress to resolve them,” said Bharat Ramamurti, the deputy director of the National Economic Council and the White House’s point person on the relief program.Mr. Ramamurti said that “tens of thousands” of loans had been approved by around 4,000 lenders using the new formula, and that some large lenders — including the online lender Biz2Credit and two banks, Cross River Bank and Customers Bank, that make loans for dozens of partner companies — said they had successfully made the needed updates.But many applicants are struggling. Chase’s refusal to make the change provoked outrage on social media from its customers. “What a slap in the face,” one tweeted at the bank. “Please make this right,” another begged.And some Bank of America customers are mired in confusion over the bank’s process, which required loan seekers to apply in writing for an incorrect amount — one that used the older formula — and rely on the bank’s staff to correct their applications by hand.Asim Khan, an environmental consultant in Ann Arbor, Mich., has been trying for two weeks to get his Bank of America application untangled. He has spent hours on the phone and on hold. “I’ve had two reps tell me they’ve seen it work for people, but yet they can’t make it work for me,” he said. “It’s all super clumsy.”Bill Halldin, a Bank of America spokesman, said the bank was “working with each individual client to manually update their loan information, which is the best way for us to help them take advantage of the recently announced rule change.”While the program still has two weeks left, the big banks are already shutting down. Bank of America stopped accepting new applications last week, and Chase plans to close its application system on Friday. More

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    When Can I Apply for a P.P.P. Loan?

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    AdvertisementContinue reading the main storySupported byContinue reading the main storySmall-Business Loan Program Will Restart Monday, but Not for AllA small group of lenders that focus on underserved borrowers will get priority when the Paycheck Protection Program resumes.Businesses that received loans in the first round will be eligible to receive second loans, with stricter eligibility.Credit…Brendan Smialowski/Agence France-Presse — Getty ImagesJan. 8, 2021Updated 4:46 p.m. ETLenders who specialize in working with Black- and minority-owned small businesses will have a head start in tapping Paycheck Protection Program funds when the program reopens next week, a move meant to address complaints that the aid was not distributed equitably the last time around.Starting on Monday, borrowers will be able to apply for new loans through the P.P.P., but only through a small group of community lenders, government officials said on Friday. Community lenders are specially designated institutions that focus on underserved borrowers, including women-led businesses and those run by Black, Latino and Asian owners and other minorities.Government officials did not set a timeline for when larger banks and lenders will be allowed to start processing loans, saying only that it would happen “shortly.”The decision is certain to frustrate many borrowers eager to seek aid through the relief program, which offers small businesses forgivable loans to help them retain and pay their workers. The program closed in August after distributing $523 billion to more than 5 million businesses, but last month’s stimulus package included $284 billion in new funding to restart the relief effort.The move to prioritize community lenders came after criticism that the initial round of Paycheck Protection Program funding was unevenly and unfairly distributed. The program’s structure favored businesses with existing banking relationships, creating unique challenges for some of the most vulnerable business owners.When the program opened in April, the money ran out in just 13 days, inflaming borrowers who were shut out. Congress allocated additional funds, which proved sufficient: When the program ended, more than $120 billion was left unspent.Borrowers were previously limited to just one loan, but the new funding will be available to both first-time and returning borrowers. Businesses will be eligible for a second loan if they suffered a sales drop of at 25 percent or more in at least one quarter of 2020, compared with the previous year. Second loans will be restricted to businesses with no more than 300 employees; initial loans are available to larger companies, generally those with up to 500 workers.An administration official said on Friday that the Treasury Department, which has called the shots on the loan program, is confident there will be enough money to satisfy all qualified borrowers’ needs.“It’s not just that we don’t anticipate the money to run out in a week; we don’t anticipate the money to run out,” the official, speaking on the condition that he not be named, said at a briefing for reporters.The move to resurrect the Paycheck Protection Program — which is explicitly aimed at keeping small business owners from laying off workers — comes as the employment picture is once again darkening. U.S. employers cut 140,000 jobs in December, the first decline since April, the Labor Department said Friday.Banks are expecting heavy demand for the new round of loans, as the virus continues to surge and restrictions on activity are reintroduced.Credit…Mohamed Sadek for The New York TimesThe Small Business Administration, which manages the program, said it will begin accepting applications on Monday from community lenders seeking loans for first-time borrowers. On Wednesday, those lenders will be able to submit applications from people seeking second-round loans.Community lenders make up around 10 percent of the program’s more than 5,000 lenders, according to S.B.A. officials. They include Community Development Financial Institutions, Minority Depository Institutions and Certified Development Companies.Business & EconomyLatest UpdatesUpdated Jan. 7, 2021, 12:58 p.m. ETElon Musk has become the world’s richest person, as Tesla’s stock rallies.Simon & Schuster drops Senator Hawley’s book.Daimler responds: ‘We depend on a reliable and stable political framework.’“We appreciate the effort the S.B.A. is making to ensure that some of the hardest to reach and underserved businesses are first in line,” said José Martinez, the president of Prestamos CDFI, a division of the nonprofit social service group Chicanos Por La Causa. “We’ve been receiving a lot of calls from clients who don’t want to be left behind.”Prestamos lent nearly $27 million to more than 900 borrowers during the relief program’s initial phase. Mr. Martinez said he expects most to return for a second loan.President-elect Joseph R. Biden Jr.’s nominee to head the Small Business Administration — Isabel Guzman, a former top official at the agency during the Obama administration — spoke on Friday about the agency she will inherit.She did not directly mention the Paycheck Protection Program — the largest lending program by far in the agency’s nearly 70-year history — but she acknowledged the turmoil many companies are experiencing.“So many small businesses across the country have been devastated by the pandemic and economic crisis,” Ms. Guzman said. “A disproportionate impact has fallen, as it often does, on our businesses owned by people of color.”Most of the program’s financiers, including some of the country’s largest banks, said they plan to resume lending. Bank of America, JPMorgan Chase, Cross River Bank and Wells Fargo, which collectively made more than one million loans, said they intend to start taking applications as soon as the S.B.A. gives them the green light.Bankers said their borrowers are clamoring to apply for a second loan.“We think we are likely in for a very tough winter until the vaccine is more widely available, and we expect there will be a pretty heavy demand,” said John Asbury, the chief executive of Atlantic Union Bank, in Richmond, Va., which made more than 11,000 loans through the program’s first iteration.The relief loans, which are backed by the government but issued by banks, are designed to be forgiven so long as borrowers use most of the money to pay their workers. The rare offer of essentially free money has been a lifeline for business owners grappling with the pandemic’s forced shutdowns and other economic shocks.Holly Schaffner, the owner of Mrs. Turbo’s Cookies, a bakery in Ohio, received two P.P.P. loans totaling $48,000 for her two stores. Before the pandemic, she had 20 employees; in March, as the crisis took hold and she was briefly forced to close, her staff plunged to six. Her sales dropped as much as 70 percent in some months last year.The relief loans allowed her to rehire several people she had laid off. “If it hadn’t been for that money, I’m not sure I would have had the revenue to be able to make a payroll,” she said. “It was incredibly helpful.”Ms. Schaffner plans to apply for a second loan once her bank starts taking applications. She now has 12 workers and hopes to hire more soon.S.B.A officials said they are making changes to try to avoid a reoccurance of the technical meltdowns and other debacles that plagued the initial lending rounds. When the program opened in April, bankers overwhelmed the system with applications, leading to days of delays and frustrating both lenders and applicants. The problems resurfaced when a second round of funding was released a few weeks later.This time, the agency is using a new system that it hopes will scale to meet demand.It is also abandoning the practice of approving loan applications instantaneously, which allowed some borrowers to receive their loan funds just hours after they applied. In response to concerns about fraud — which some lenders and watchdogs fear was extensive — the agency is adding some automated data-verification steps before applications will be approved. Approvals will generally take at least one day, an agency official said on Friday.AdvertisementContinue reading the main story More