Santa Clarita Man Pleads Guilty to Fraudulently Obtaining Over $1 Million in COVID-19 Relief PPP Loans for His Sham Companies
LOS ANGELES – A Santa Clarita Valley man pleaded guilty today to a federal criminal charge that he fraudulently obtained more than $1 million in Paycheck Protection Program (PPP) loans for his sham companies by submitting fake tax documents and fraudulent employee information.
Raymond Magana, 40, of Santa Clarita, pleaded guilty to one count of fraud in connection with major disaster or emergency benefits.
According to his plea agreement, in May and June 2020, Magana submitted to banks applications for PPP loans that contained false statements about the number of employees and the amount of payroll expenses. Specifically, on June 3, 2020, Magana submitted a PPP loan application to Customer’s Bank for $940,416 for The Building Circle LLC, a company registered in his name. In that application, Magana falsely listed that the company’s average monthly payroll was $376,167, and it employed 40 workers. Magana admitted to submitting fraudulent tax documents that reported $4,402,000 in annual wages paid to 40 employees in 2019 and $852,000 paid in employee wages during the first quarter of 2020.
Both IRS and California Employment Development Department records showed that the company never reported paying any employees, and the underwriting packet also did not include a list of employees or associates for the company, according to an affidavit filed with a criminal complaint in this case.
Investigators later determined that the Pico Rivera address given as The Building Circle’s headquarters was a 980-square-foot, single-family home that appeared to be a residence, not a business. Ultimately, the loan application was approved and $940,416 was funded to Magana’s shell company on June 4, 2020, the affidavit states.
Magana also admitted that he applied for and received a PPP loan of $360,415 for Forward Builders LLC, another shell company, using fake tax documents and false employee information, and falsely claiming $1.73 million in employee wages.
When a bank manager contacted Magana after one of the business accounts receiving PPP funds had been frozen because of suspicious activity, he told the bank “We have all the documents, we got approved,” and he refused to agree to return the improperly obtained PPP funds, the affidavit states. The bank nonetheless kept the $940,416 in defendant’s bank account frozen and defendant could not access it, the plea agreement states.
The actual loss from the two loans that were approved and disbursed was $360,415, according to the plea agreement.
United States District Judge Stanley Blumenfeld Jr. has scheduled a May 11 sentencing hearing, at which time Magana will face a statutory maximum sentence of 30 years in federal prison.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was designed to provide emergency financial assistance to millions of Americans who are suffering the economic effects resulting from the COVID-19 pandemic. One source of relief provided by the CARES Act is 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 more than $300 billion in additional PPP funding. In December 2020, Congress authorized $250 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. Businesses must use PPP loan proceeds for 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 a set period and use at least a certain percentage of the loan towards payroll expenses.
In December 2020, Steven R. Goldstein, 36, of Northridge, Magana’s business partner, pleaded guilty to a single-count information charging him with fraud in connection with major disaster or emergency benefits. Goldstein admitted that he fraudulently obtained $655,000 in PPP loans for his companies by submitting false tax documents and fake employee information. Goldstein’s sentencing hearing is scheduled for March 30.
IRS Criminal Investigation and the Small Business Administration Office of Inspector General investigated this case.
Assistant United States Attorney Charles E. Pell of the Santa Ana Branch Office is prosecuting this case.