On Friday, Baoke Zhang, 35, of Issaquah, Wash., was charged with filing fraudulent bank loan applications seeking more than $1 million in forgivable loans guaranteed by the Small Business Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Zhang, a software engineer, allegedly applied for forgivable loans from multiple banks by claiming fictitious payroll expenses associated with fake information technology companies that he created. In total, Zhang applied for $1,525,000 in loans.
According to the Department of Justice, Zhang provided lenders with fake IRS documentation that claimed federal tax withholding for a sole proprietorship in his name for 25 employees.
The software engineer submitted documentation that said the IRS had assigned an Employer Identification Number (EIN) to one company on April 3, 2017. The IRS assigned the EIN on April 3, 2020, only a week before Zhang submitted his application to the lender.
Zhang also provided fraudulent IRS documentation showing federal tax withholding for 20 employees for a limited liability company he created.
Zhang gave falsified documentation for a second company, as well. He claimed the EIN was assigned in 2018, but the IRS assigned the EIN on April 21, 2020, just two days before Zhang submitted an application for the company to the lender.
A falsified bank statement was also provided to show payroll disbursements in December 2019. Zhang opened the account in April 2020.
The CARES Act, enacted on March 29, is designed to provide emergency financial assistance to the millions of Americans suffering from 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 Paycheck Protection Program (PPP). In April, 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%. PPP loan proceeds must be used by businesses on payroll costs, interest on mortgages, rent and utilities. The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within eight weeks of receipt and use at least 75% of the forgiven amount for payroll.
The federal criminal complaint filed in the Western District of Washington charges Zhang with wire fraud and bank fraud.
A federal criminal complaint is merely an accusation. Zhang is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.