On July 15, 2020, the Department of Justice ("DOJ") charged Andrew Marnell with bank fraud in connection with $8.5 million worth of Paycheck Protection Program ("PPP") loans he obtained for fake business expenses, that were then spent on gambling and stock market bets, incurring millions of dollars in losses. See United States v. Marnell, No. 2:20-mj-03313-DUTY (C.D. Cal. Jul. 15, 2020).
The PPP is a form of emergency relief to support job retention for small businesses suffering from the economic effects of the COVID-19 pandemic. Catalyzed by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, enacted on March 29, 2020, the PPP provides qualifying small businesses 1% interest loans with a two-year maturity for payroll costs, interest on mortgages, rent, and utilities, with the interest and principal amount forgiven if the proceeds are spent on these expenses within a certain period of time.
According to the complaint, Marnell submitted fraudulent PPP loan applications on behalf of at least four different LLCs, under a variety of aliases, to several financial institutions for over $10 million. The loan applications contained false and misleading statements about the companies' business operations and payroll expenses, as well as fake and altered back-up documentation, including federal tax filings that were never submitted to the IRS and employee payroll records. In support of the complaint, an affidavit by a Senior Special Agent with the Federal Housing Finance Agency-Office of Inspector General states that although an investigation is ongoing, none of the LLCs appear to be functional businesses with any employees.
The complaint further alleges that, upon receiving the loan proceeds, Marnell transferred them from various bank accounts to his personal brokerage account, spending them on risky stock transactions and at a Las Vegas casino. The stock transactions—which included "naked options" trades in a futures account—resulted in net losses of $525,693 in May, and $2,733,455.40 in June. Marnell wired $150,000 of the proceeds to himself in Las Vegas on June 5th, and, based on reports from a number of casinos, used those monies to engage in gambling activity throughout the month.
The charges coincide with several other federal indictments for similar COVID relief-related fraud schemes filed in recent weeks throughout the country. See, e.g., United States v. Belone, No. 0:20-mj-06264 (S.D. Fla. Jul. 10, 2020); United States v. Buoi, No. 20-mj-4143-DHH (D. Mass. June 19, 2020). In a July 8, 2020 press release, the U.S. Attorney's Office asserted DOJ's commitment to prosecuting these cases in order to prevent "deplet[ion] [of] the program and diver[sion] [of] funds from those who need it most." In light of this commitment, businesses looking for relief through the PPP should expect their applications to receive close scrutiny by regulators, banks, and other financial institutions looking to flag potential misconduct while keeping companies and their employees afloat.
Originally published by Sheppard Mullin, July 2020
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