Redmond, Washington man sentenced to one year in prison for Paycheck Protection Program fraud

Seattle – A 62-year-old Redmond, Washington man was sentenced today in U.S. District Court in Seattle to one year in prison for conspiring to defraud the federal Paycheck Protection Program (PPP) of $646,000 in COVID-19 relief funds, announced U.S. Attorney Nick Brown.  Joseph M. Freeman used the names of two companies he registered to obtain forgivable Paycheck Protection Program loans. After detecting the fraud, federal investigators froze approximately $220,000 that remained in Freeman’s bank account and returned it to the Small Business Administration.  At the sentencing hearing U.S. District Judge James L. Robart said, “Other people who were in the same situation chose to suffer those circumstances rather than commit fraud on the Paycheck Protection Program… I think it is important to understand you cannot steal from the government.”

“When Mr. Freeman obtained pandemic relief funds through fraud, it meant other legitimately needy business owners were delayed and possibly denied funds as there was a limited pool of relief money,” said U.S. Attorney Nick Brown. “As we continue to emerge from the pandemic, it is critical that we uncover the fraud and hold accountable those who sought to unjustly profit from programs designed to keep the needy afloat.” 

According to records in the case, in May 2020, Freeman and his coconspirators used information about a company he formed in 2004 to claim $500,000 in PPP funds. Freeman claimed Special Delivery LLC had 15 employees and a payroll of $200,000 per month, when in fact it had no employees other than Freeman. Freeman used fake Internal Revenue Forms to make it appear the company had employees and sought $500,000 in PPP funds. On May 20, 2020, the loan proceeds were wired to Freeman’s bank. After receiving the funds, Freeman created an account with a payroll service to disburse the funds to individuals who were not employees of the company. In fact, the list included friends, family, and people to whom Freeman personally owed money.

On June 15, 2020, Freeman and his coconspirators submitted a second fake application. Freeman claimed New Jack Trucking LLC had 10 employees and a monthly payroll of $58,400. Freeman and his associates claimed the business had been in operation in February 2020 even though the entity never had any genuine business activity. The coconspirators used fake IRS forms and a falsified bank statement to make it appear New Jack Trucking was a genuine business with employees. On June 16, 2020, Freeman and his coconspirators obtained $146,000 for that fraudulent application.

Freeman supplied some of the loan proceeds to his coconspirators and used some of the funds for his own benefit. The account contained debits for airline travel, hotel expenses, and tickets to various venues and sporting events.

In July 2020, after federal investigators detected the fraud and notified Freeman’s bank, approximately $220,000 of the loan proceeds were frozen and returned to the Small Business Administration. The net loss from the scheme is $426,666.

As Assistant United States Attorney Cindy Chang noted, the damage was not just the stolen funds, but the strain fake applications put on the benefit system. “During major disasters and times of crisis, it is particularly important for the government to be able to disburse aid quickly to victims to mitigate the impact of the crisis.  When individuals exploit these vulnerable periods, they not only drain finite monetary resources, they also burden limited infrastructure resources.  For example, it was widely reported that the large volume of PPP applications in the first few months of the pandemic overwhelmed SBA servers and frustrated small business owners across the country who were unable to even submit an application, much less receive funds.”

Judge Robart ordered Freeman to pay $426,666 in restitution and to be on three years of supervised release following his prison sentence.

This case was investigated by the U.S Treasury Inspector General for Tax Administration (TIGTA).

The case was prosecuted by Assistant United States Attorney Cindy Chang.

On May 17, 2021, the Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. For more information on the department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.

Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud (NCDF) Hotline via the NCDF Web Complaint Form at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.