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Texas Indian American Engineer faces charges over $10 million fraud PPP loan

An Indian-origin engineer by name Shashank Rai has been charged by Texas prosecutors for fraudulent applications for $10 million loans under the COVID-19 relief program claiming to be for his firm employees. The charges include bank fraud and making false statements to a federal agency.

Paycheque Protection Programme (PPP) is an initiative of the federal government to provide emergency help to small businesses hit by the COVID—19 crisis to enable them to keep their employees availing loans under the program, which are written off after eight weeks if all the workers stay on the payroll. US Congress approved $649 billion for the program.

Shashank Rai, 30, of Beaumont, Texas, allegedly sought millions of dollars in forgivable loans in forgivable loans guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, from two different banks by claiming to have 250 employees earning wages when, in fact, no employees worked for his purported business. Rai is charged with violations of wire fraud, bank fraud, false statements to a financial institution, and false statements to the SBA.

“As alleged, Rai fraudulently pursued millions of dollars in loans intended for legitimate small businesses suffering the economic hardships of the COVID-19 pandemic,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “The department and our law enforcement partners will remain vigilant in our efforts to protect critical CARES Act relief programs from fraud and abuse.”

“The behavior in this case was very brazen,” said U.S. Attorney Joseph D. Brown of the Eastern District of Texas.  “Those who submit these applications for loans or other assistance need to understand that there are people checking on the representations made, and those representations are made under oath and subject to the penalties of perjury. Federal agencies are watching for fraud, and people who lie and try to cheat the system are going to be caught and prosecuted.”

Pre-meditated plan, says prosecution

“To support small and community banks, the Federal Home Loan Banks can accept Paycheck Protection Program (PPP) loans as collateral when making loans to their members,” said Richard Parker, Acting Deputy Inspector General for Investigations for the Federal Housing Finance Agency, Office of Inspector General.

“Today’s charges hold the defendant responsible for his actions to swindle money out of a federal program intended to help those in need during a pandemic crisis,” said Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation Office of Inspector General (FDIC OIG).  “When an individual cheats the Paycheck Protection Program out of money, it deprives hard-working Americans and deserving small businesses.”

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According to court documents unsealed today in U.S. District Court in Beaumont, Rai allegedly made two fraudulent claims to two different lenders for seek loans guaranteed by the SBA for COVID-19 relief through the PPP.  In the application submitted to the first lender, Rai allegedly sought $10 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of $4 million.  In the second application, Rai allegedly sought approximately $3 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of approximately $1.2 million.

According to court documents, the Texas Workforce Commission provided information to investigators of having no records of employee wages having been paid in 2020 by Rai under his business, Rai Family LLC. In addition, the Texas Comptroller’s Office of Public Accounts reported to investigators that Rai Family LLC reported no revenues for the fourth quarter of 2019 or the first quarter of 2020.

According to court documents, materials recovered from the trash outside of Rai’s residence included handwritten notes that appear to reflect an investment strategy for the $3 million, which is the amount of money that Rai allegedly sought from the second lender.

What is PPP?

The CARES Act is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic.  One source of relief provided by the CARES Act was the authorization of up to $349 billion in forgivable loans to small businesses for job retention of employees. In April 2020, Congress authorized over $300 billion in additional PPP funding.

The PPP allows qualifying small-businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent.  PPP loan proceeds must be used by businesses on payroll costs, interest on mortgages, rent, and utilities.  The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within eight weeks of receipt and use at least 75 percent of the forgiven amount for payroll.

 

 

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