Los Angeles-area man pleads guilty to COVID-19 relief fraud following HSI probe
LOS ANGELES – A Santa Clarita Valley man pleaded guilty today to perpetrating a scheme to fraudulently obtain approximately $1.8 million in COVID-19 relief guaranteed by the Small Business Administration (SBA) through the Economic Injury Disaster Loan (EIDL) program and the Paycheck Protection Program (PPP).
The case is the result of an investigation by Homeland Security Investigations (HSI) Los Angeles’ El Camino Real Financial Crimes Task Force and the Treasury Inspector General for Tax Administration.
According to court documents, Hassan Kanyike, 29, of Santa Clarita, admitted that he submitted six fraudulent PPP loan applications and two fraudulent EIDL applications. The applications sought funds to purportedly pay the salaries of employees whom he claimed worked for two of his businesses. Kanyike successfully obtained approximately $1 million through four PPP loans, and another $300,000 through two EIDL loans.
In support of the fraudulent PPP loan applications, Kanyike submitted fake federal tax filings and payroll reports. For example, in one loan application, Kanyike falsely claimed the business had 26 employees and an average monthly payroll of $168,000, and he submitted a fabricated IRS tax form claiming Falcon Motors had paid $2,022,300 in payroll in 2019. But Kanyike admitted during his plea that the company had substantially fewer employees and substantially lower payroll. Kanyike also admitted that he obtained additional Employer Identification Numbers from the IRS in April and May 2020, so that he could apply for multiple loans for the same used-car business. Kanyike then used a substantial portion of the PPP loan proceeds for his own personal benefit.
Kanyike was arrested in December 2020 at Los Angeles International Airport just before he was about to board a flight to Dubai. At the time of his arrest, Kanyike had transferred approximately $762,000 to Uganda, his country of citizenship, from one of the business accounts that had received the loan proceeds, in violation of the terms of the PPP and EIDL program.
Kanyike pleaded guilty to one count of wire fraud and is scheduled to be sentenced on August 23. He faces a maximum penalty of 20 years in prison. As part of his guilty plea, Kanyike is required to pay approximately $1.3 million in restitution.
The case is being prosecuted by the Department of Justice’s Criminal Division and the U.S. Attorney for the Central District of California’s Criminal and Major Fraud Sections.
The Coronavirus Aid, Relief, and Economic Security (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 and certain other expenses through the PPP, and $10 billion in low-interest loans to small businesses through the EIDL program. In April 2020, Congress authorized over $300 billion in additional PPP funding and $10 billion in additional EIDL funding, and in December 2020, Congress authorized another $284 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%. PPP loan proceeds must be used by businesses for 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 a set time period and use at least a certain percentage of the loan towards payroll expenses.
The EIDL program is designed to provide economic relief to small businesses that are currently experiencing a temporary loss of revenue. EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses, such as continuation of health care benefits, rent, utilities and fixed-debt payments. If an applicant also obtains a loan under the PPP, the EIDL funds cannot be used for the same purpose as the PPP funds.
HSI’s Operation Stolen Promise combines HSI’s expertise in global trade, financial fraud, international operations and cyber-crime. The initiative focuses investigative efforts on financial fraud schemes, the importation of prohibited and fraudulent pharmaceuticals and medical supplies, websites defrauding consumers or facilitating illegal activity and any other illicit criminal activities associated with the virus that compromise legitimate trade, financial systems or endanger the public.
HSI encourages the public to report suspected illicit criminal activity or fraudulent schemes related to the COVID-19 pandemic, via email at Covid19Fraud@dhs.gov.