IRS: COVID-19 fraud convictions bring average 3-year prison sentence

Three years in prison is the average sentence imposed on individuals convicted of ripping off federal COVID-19 relief programs aimed at helping businesses and individuals, officials said this week.

The Internal Revenue Service’s Criminal Investigation division has helped to prosecute 180 cases nationwide involving fraudulently obtained COVID-19 Economic Injury Disaster Loans, Paycheck Protection Program loans and Pandemic Unemployment Insurance payments, said Jim Lee, the division’s chief.

“These are the [cases] that have made it all the way through the judicial system” and sentences have handed down. “There’s an average three-year sentence,” he told reporters in releasing a report on the division’s activities during the fiscal year ended Sept. 30.

Lee said IRS criminal investigators have worked on more than 800 COVID fraud cases since 2020 and 390 indictments have been handed down.

“We’re spending 7% of our time in that space,” he said in response to a Newsday question.

Two local convictions are highlighted in the division’s annual report.

In March, a physician who lives in Glen Cove was sentenced to four years and three months in prison for stealing $3.8 million in PPP and COVID EIDL loans and grants.

Dr. Konstantino “Dino” Zarkadas was ordered by a judge in federal court in Central Islip to pay restitution of $3.5 million, though his attorney said he didn’t have the money.

The doctor confessed last year to lying on 11 PPP and EIDL applications and then using the funds to purchase fancy watches, a yacht and to settle a separate federal case involving his poor record-keeping of a weight-loss drug that he gave to patients.

In April, a Chinese citizen was sentenced in Manhattan federal court to four years and four months in prison for attempting to defraud the PPP and EIDL programs of more than $20 million.

Muge Ma pleaded guilty to orchestrating the multimillion-dollar scheme to fund his two companies. In fraudulent loan applications, he said the companies had "global" operations that together employed 344 people, paid millions of dollars in wages and generated 2019 revenue of $4.4 million.

But Ma was one company’s only employee and the other had no employees, according to a federal criminal complaint.

Ma, who lived in a Manhattan condominium, was approved for two COVID EIDL loans and an Advance grant, totaling $660,000, and a PPP loan for $800,000 before being arrested in May 2020.

At Thursday’s news conference, the IRS’ Lee said, “these are some of the sickest cases out there because [they involve individuals] that are willing to steal from people who really need the money.”

He and others said the IRS Criminal Investigation division works with the Justice Department, FBI, the Small Business Administration’s Office of Inspector General and local law enforcement agencies to prosecute fraud tied to pandemic relief.

Together, the PPP, COVID EIDL and Pandemic Unemployment Insurance distributed more than $2 trillion in 2020-21 in federal money and federally guaranteed bank loans, according to a report from the House Select Subcommittee on the Coronavirus Crisis.

Among the three programs, EIDL has the highest percentage of projected fraud: up to $86 billion out of $350 billion in total COVID loan funds, or nearly 25%, according to the SBA Inspector General.