An Issaquah software engineer is charged with seeking more than $1 million in loans from the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The 35 year old, Baoke Zhang, has been charged with wire fraud and bank fraud in a federal criminal complaint, after seeking forgivable loans guaranteed by the Small Business Administration (SBA) by asking for loans from multiple banks by claiming fake payroll expenses from information technology companies he fictionalized.
Zhang allegedly provided fraudulent documents to two different lenders in support of applications for loans guaranteed by the SBA for COVID-19 relief through the Paycheck Protection Program. In total, Zhang sought forgivable loans in the amount of $1.5 million.
“The defendant allegedly submitted false documents in a brazen scheme to acquire over 1.5 million dollars in loan funds made available for legitimate businesses adversely affected by COVID-19,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “The department and our law enforcement partners will continue to identify and bring to justice those who commit fraud on CARES Act programs.”
The United States Department of Justice details the case as follows:
Allegedly, Zhang provided lenders with fraudulent IRS documentation purporting to show federal tax withholdings for a sole proprietorship in his name for 25 employees. As part of an effort to show that this business had been operating for several quarters, Zhang allegedly submitted to two lenders documentation purporting to show that, on April 3, 2017, the IRS had assigned an Employer Identification Number (EIN) to his sole proprietorship. In fact, the IRS assigned the EIN on April 3, 2020, only a week before Zhang submitted his application to the lender.
Zhang allegedly also provided fraudulent IRS documentation purporting to show federal tax withholdings for 20 employees for a limited liability company he created.
He then allegedly provided falsified documentation purporting to show that an EIN for the second company had been assigned in 2018. In fact, the IRS assigned the EIN on April 21, 2020, just two days before Zhang submitted an application for the company to the lender. Zhang also allegedly provided the lender with a bank statement purporting to show that the company had disbursed payroll payments in December 2019. In fact, Zhang opened that account in April 2020.
“This defendant tried more than once to defraud the Paycheck Protection Program (PPP) – a program designed to keep people working,” U.S. Attorney Brian T. Moran for the Western District of Washington stated in a press release. “I am pleased that the systems designed to detect and deny fraudulent payments caught his scheme before federal funds went out the door.”
The CARES Act is a federal law enacted on March 29, 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. 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.
“This is an example of someone who was attempting to take advantage of a program to help Americans during one the most difficult times in recent memory,” Special Agent in Charge Raymond Duda of the FBI’s Seattle Field Office stated in a press release.
Trial Attorney Amanda Vaughn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Brian Werner for the Western District of Washington are prosecuting the case.