COVID business loan fraud: Long Islanders bought luxury watches, yacht, vacation home with funds

A family that owns a chain of nail salons, a doctor, gang members charged with murder, a world-class athlete, an amusement park operator — they’re all among the Long Islanders accused of stealing more than $47.9 million in loans and grants meant to help small businesses survive the coronavirus pandemic.

At least 20 residents of Nassau and Suffolk counties have been arrested for bilking the federal government’s marquee business-relief programs: Paycheck Protection Program loans and COVID-19 Economic Injury Disaster Loans.

Money that was meant to keep companies afloat and paychecks going to their employees was instead used for yachts, luxury watches and automobiles, vacation homes and nights out in New York City, according to criminal indictments and complaints.

Prosecutors, investigators and experts told Newsday that the cases in federal court in Central Islip, Manhattan and White Plains represent the beginning, not the end, of a drive to punish those who defrauded pandemic aid during the worst days of the virus in 2020 and 2021.

Nationwide, more than $200 billion was stolen, or about 17% of the $1.2 trillion that was distributed via PPP forgivable bank loans and COVID EIDL loans and grants from the federal government, based on an estimate from the independent inspector general of the U.S. Small Business Administration. The agency ran both programs.

“Prosecutors are just getting started because there was so much fraud,” said Jim Richards, a former global head of financial-crimes risk management at Wells Fargo bank. “The PPP, in particular, was rife with fraud because of how the program was designed and how it was administered by the SBA and Treasury Department.”

He and others recalled the crisis of early 2020 when the fast-moving virus killed thousands of people per day and shut down much of the U.S. economy. Massive layoffs, plummeting stock prices and a recession followed.

'Trust and don't verify'

As a result, the administration of then-President Donald Trump and Congress prioritized getting loans and grants to employers over stopping fraudsters. Leaders from across the political spectrum wished for workers to resume receiving their wages and then spending them to help revive the economy.

“SBA and Treasury adopted a trust-and-don’t-verify approach,” said Richards, who has been tracking PPP fraud cases for four years as a financial crimes consultant in California.

“Loan applicants reported their losses due to the pandemic, the number of people that they employed and the size of their payroll. That information was used to determine the loan amount, but the information wasn’t checked by the bank or SBA. It was a perfect storm for fraud,” he said.

On Long Island, three nail salons at the Broadway Commons mall in Hicksville, Smith Haven Mall in Lake Grove and Green Acres Mall in Valley Stream were part of one family’s scheme to steal more than $13 million from the PPP in 2020 by inflating the number of employees and payroll size. In some instances, employees were listed as working in seven salons at the same time. The successful applications for Victoria’s Nails & Spa yielded $7.8 million in loans, according to court documents.

Defendant Victoria Ho, formerly of Hicksville, pleaded guilty to conspiracy to make false statements to a financial institution and the SBA. She was sentenced to two years in prison in July 2022. She also must pay $1.4 million in restitution along with her two co-defendants. The trio had previously returned the loan money after one of the banks became suspicious.

Ho, in a letter to the judge before sentencing, said, “I wish I could explain why I did what I did. I cannot explain it to myself.”

Her co-defendants, brother Dat Tat Ho, of the Bronx, and their uncle Peter Nguyen, of Hicksville, pleaded guilty in 2022 to conspiracy to commit wire fraud and bank fraud. Their sentencing in the case and another is scheduled for July. 

In a second case, the men pleaded guilty to charges of smuggling Vietnamese citizens into the United States, having them work in the nail salons for low wages and instructing them to falsely seek asylum by claiming they were victims of juvenile neglect in Vietnam.

Attorneys for the Ho siblings declined to comment, while Nguyen's attorney did not respond. 

Links to other crime

The Victoria’s Nails case is one of many prosecutions where theft of PPP and/or EIDL funds is part of a larger criminal enterprise, said Breon Peace, U.S. Attorney for the Eastern District, which includes Nassau and Suffolk.

“We have numerous ongoing investigations [where defendants] haven’t been charged yet, but we expect to charge in the coming months,” he said. "So, while we've done a tremendous amount already we're still in the early to middle stages of going after the people who engaged in fraud."

For Peace, who leads a committee that advises U.S. Attorney General Merrick Garland on white-collar fraud, going after pandemic fraudsters is about more than discouraging future crime. Peace said those who stole from the PPP and EIDL took away a lifeline for hard-hit businesses and their employees because the funding was finite.

“The fraud negatively impacted people who really needed that support — and that’s something we cannot tolerate,” he said in an interview. “Much of the money was spent on personal items and things that are frankly often in excess, whether it’s a yacht or a Rolex watch.”

Peace was referring to purchases made by a Glen Cove physician using stolen COVID relief dollars.

Dr. Konstantinos “Dino” Zarkadas fraudulently obtained $3.8 million in at least 11 PPP and EIDL loans for corporate entities that he controlled, excluding his medical office in New York City. He then used $194,915 to make a down-payment on a $1.75 million yacht for his brother-in-law, concealing the July 2020 transaction by making the check payable to his sister and writing in the memo line that the money was for “repayment for payroll,” according to court documents.

Splurging on luxury

Zarkadas also spent a total of $140,000 on four watches from Rolex and Cartier for himself and family members as well as an undisclosed amount for BMW and Maserati vehicles, documents show.

He pleaded guilty to disaster relief fraud and wire fraud in 2021 and is currently serving a prison sentence of four years and three months.

Zarkadas didn’t speak in open court when he was sentenced in 2022, though his attorney, Ronald G. Russo, said most of the pandemic aid went toward resolving a disputed office lease. Russo didn’t respond to a request for comment for this story.

Newsday attempted to contact legal representatives for the 20 Long Islanders charged in COVID business-relief cases in federal court. Most either didn’t respond or declined to comment.

Randy Zelin, a white-collar defense attorney in Manhattan who represents a Freeport woman accused of stealing from the PPP, said, “Not every person who was accused of a criminal offense is guilty … There are people who do things because they’re ignorant, they’re easily led down the primrose path, they’re desperate, they’re greedy or they convince themselves that what they’re doing isn’t wrong,” he said.

For investigators from the federal Department of Homeland Security, Internal Revenue Service, Postal Inspection Service and other agencies who are examining allegations of pandemic business-relief fraud, the magnitude of the problem is mindboggling.

“Every time I turn around to do something else, I discover the people that I’m looking into also have done PPP fraud,” said Hope Cerda, a postal inspector in the metropolitan area who has worked on about eight pandemic fraud cases. “These cases are everywhere. We just can’t stop finding them,” she said.

Scott C. D’Alessandro, assistant special agent-in-charge of the local office of IRS Criminal Investigation, agreed, saying “the level of greed is egregious and a bit offensive, if you ask me.”

He and others said they’ve expanded their probes to include fraud allegations totaling thousands of dollars as well as millions of dollars, and to instances where pandemic theft is only one crime among many.

“In the beginning, we were very focused on identifying that stand-alone fraudulent loan … [But] now we’re transitioning a bit to cases where there are multiple charges that are totally unrelated,” D'Alessandro said.

For example, stealing from the PPP is the final charge in a 59-count indictment against eight alleged members and associates of a Hempstead street gang, called the Insane Crip Gang or ICG. They are accused of three murders, 20 shootings, robbery, drug trafficking and attempted kidnapping, according to prosecutors.  

One gang member distributed a document to other members that contained "instructions on how to submit fraudulent PPP applications that would not be flagged by the banks or Small Business Administration. This process allowed the gang and its members and associates to enrich themselves by defrauding the government of thousands upon thousands of taxpayer dollars," states a memo from prosecutors requesting that the judge keep the gang members in jail while they await trial.

Among the gang members charged are six individuals from Hempstead, Mount Sinai and Uniondale. All have pleaded not guilty.

Sprinter charged

In addition, PPP fraud is an aspect of an anti-doping case in which former world-class sprinter Dewayne Barrett and another man are alleged to have provided banned performance-enhancing drugs to runners from Nigeria, Switzerland and the United Kingdom. The athletes were preparing to compete in the 2020 Tokyo Olympics, according to the indictment.

Barrett, who lives in Elmont, won the silver medal for Jamaica in the 4x400 relay at the 2008 World Indoor Championships. He then worked as a personal trainer and owned a Manhattan gym, the indictment shows.

In December, Barrett was charged with committing wire fraud by using the identities of more than 70 people to apply for over $2.5 million in PPP loans. The successful applicants received a total of $1.8 million and paid Barrett kickbacks of about $2,000 per application. He pleaded not guilty, and his attorney declined to comment.

Much of the theft of PPP and EIDL money occurred in 2020 before the SBA began heeding the warnings of its inspector general, Hannibal “Mike” Ware.

“The immense pressure [from Trump and Congress] to deliver capital quickly caused [SBA leaders] to lower the guardrails that would've prevented fraud,” he said. “There was no verifying whether the business applying for a loan existed before the outset of the pandemic or that it was impacted.”

Ware issued two fraud reports prior to the first PPP loan being awarded in spring 2020. But he said SBA leaders waited nearly a year to take corrective actions, such as checking that applicants were not on the Treasury Department’s Do Not Pay List and comparing information on loan applications with IRS records. The latter had initially been prohibited under the law that created the PPP.

“The good news is that Congress extended the statute of limitations on these fraud cases from five years to 10 years, and that’s based on the last overt act” by the alleged criminal, he said. “So, there could be prosecutions until 2040 and beyond.”

Among Long Island's high-profile cases is that of Donald Finley, owner of the popular Bayville Adventure Park and now-closed Jekyll & Hyde theme restaurant in Manhattan.

Finley, of Locust Valley, pleaded guilty in May to disaster relief fraud and wire fraud. He applied for and received at least 29 PPP and EIDL loans, totaling $3.2 million. He used the money to pay personal expenses and to buy personal assets, such as a house in Nantucket, Massachusetts, in February 2021, according to prosecutors.

“I’m deeply remorseful for my conduct,” Finley said in court, acknowledging that he inflated the payroll of his companies and made false statements to obtain bigger loans.

Finley is expected to be sentenced next month. Prosecutors said he faces up to 30 years in prison, repayment of the loans and fines of up to $1.25 million.

The Finley case and others raise the hackles of small business owners and taxpayers because at the end of the day it's their money that was stolen, said Michael E. Horowitz, inspector general at the Department of Justice and chairman of the Pandemic Response Accountability Committee, which consists of inspector generals from 20 federal agencies.

“There was an enormous amount of fraud that should have never happened,” he said. “We cannot now say, ‘well, the pandemic is over, so let’s move on and forget about all the fraudsters.’ "

Still, Horowitz said pursuing fraud after the fact is costly and unlikely to recoup all the money that was taken.

“You’re lucky to get 10 cents on the dollar,” he said. “The money goes into foreign bank accounts, is used to buy cryptocurrency and luxury yachts or is simply wasted.”

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.