District Man Charged with Over $2 Million in Paycheck Protection Program and Related Loan Fraud
Defendant Also Indicted for Defrauding the Archdiocese of Washington
WASHINGTON – Kenneth Gaughan, 41, of Washington, D.C., was arrested and charged by a criminal complaint, unsealed today, with fraudulently obtaining over $2.1 million in Paycheck Protection Program (“PPP”) loans and Economic Injury Disaster Loans (“EIDL”). He used those funds, in part, to purchase a $300,000 yacht, a $1.13 million rowhouse, and a $46,000 luxury sports sedan. Gaughan was also arrested on an indictment unsealed today, charging him for a separate embezzlement scheme relating to his alleged theft of over $472,000 in funds from the Catholic Archdiocese of Washington, D.C. (“ADW”), where he was previously employed as Assistant Superintendent.
The announcement was made by Acting U.S. Attorney Michael R. Sherwin, Special Agent in Charge Jennifer Boone of the Federal Bureau of Investigation’s Baltimore Field Office (“FBI”), Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service-Criminal Investigation, Washington, D.C. Field Office (“IRS-CI”), and Special Agent in Charge Kevin Kupperbusch of the U.S. Small Business Administration, Office of the Inspector General, Eastern Region (“SBA-OIG”).
The criminal complaint related to the PPP/EIDL loan fraud case was unsealed today as Gaughan has his initial appearance before U.S. Magistrate Judge G. Michael Harvey in the District of Columbia. The complaint charges Gaughan with one count of bank fraud, one count of the theft of government funds, one count of wire fraud, and one count of money laundering. The complaint alleges, through the scheme, Gaughan sought and received approximately $2.1 million in PPP and EIDL loans through applications to SBA lenders on behalf of multiple companies, all falsely purporting to register emotional support animals. Gaughan is alleged to have made false representations to receive the loan funds, including forged paperwork and bank records. Gaughan then used a portion of the loan proceeds to purchase a 2020 Cruisers Yachts 338 CX 33-foot watercraft, a 2020 Kia Stinger, and a rowhouse in Northeast, Washington, D.C. In conjunction with Gaughan’s arrest, the government obtained a warrant authorizing the seizure of the yacht, the Kia Stinger, Gaughan’s investment account, and Gaughan’s bank accounts. The government is also filing a civil forfeiture complaint against a home Gaughan purchased with his fraudulently obtained proceeds and filing a lis pendens on that property.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a federal law enacted March 29. It is 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 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 one 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 time period and use at least a certain percentage of the loan towards payroll expenses.
EIDL is an existing SBA program designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. EIDL provides loan assistance, including up to $10,000 advances, for small businesses and other eligible entities for loans up to $2 million. The EIDL proceeds can be used to pay fixed debts, payroll, accounts payable and other bills that could have been paid had the disaster not occurred; however, such loan proceeds are not intended to replace lost sales or profits or for expansion of a business. Unlike certain other types of SBA-guaranteed loans, EIDL funds are issued directly from the United States Treasury and applicants apply through the SBA via an online portal and application.
“We will not tolerate exploitation of this national emergency for personal gain,” said Acting U.S. Attorney Michael R. Sherwin. “This Office will not allow fraudsters to steal taxpayer money intended to help small businesses that are currently struggling as a result of the COVID-19 pandemic.”
“During this time, many businesses are feeling effects of the pandemic. To help businesses make it through, the government offered loans to provide economic relief to small businesses and non-profit organizations that are currently experiencing a temporary loss of revenue and enable them to keep their workers on the payroll. Unfortunately, there are greedy individuals who choose to abuse these programs in order to enrich their lifestyle,” said Kelly R. Jackson IRS-CI Special Agent in Charge of the Washington DC Field Office. “This conduct will be investigated to ensure crooks are held responsible for stealing this money away from those who were in need.”
“Mr. Gaughan was so emboldened by deceiving a church for eight years he then, allegedly, turned his deception to the government,” said FBI Special Agent in Charge Jennifer Boone, “stealing funds that were meant to be a lifeline for struggling businesses during an unprecedented economic downturn, and greedily using them to satisfy his own materialistic desires. I want to thank the agents for their diligent work in this case.”
“It is unconscionable to fraudulently attempt to gain access to a program aimed at assisting small businesses that are struggling to survive for personal gain and profit,” said SBA OIG’s Eastern Region Special Agent-in-Charge Kevin Kupperbusch. “SBA OIG and its law enforcement will aggressively investigate allegations of fraud involving SBA’s programs. I want to thank the U.S. Attorney’s Office and our law enforcement partners for their dedication and pursuit of justice.”
The indictment, also unsealed today before Magistrate Judge Harvey, charges Gaughan with offenses including mail fraud, wire fraud, and money laundering for perpetrating a separate scheme that defrauded ADW of over $472,000. According to the 12-count indictment, Gaughan was employed as an Assistant Superintendent of ADW, headquartered in Hyattsville, Maryland. In that role, Gaughan was responsible for recruiting and acting as the point of contact for contractors who provided various services to ADW. These included contractors that could help ADW implement anti-bullying, crisis intervention, and professional development programs at the approximately 95 Catholic schools overseen by ADW, located in Calvert, Charles, Montgomery, Prince George’s, and St. Mary’s Counties in Maryland, and Washington, D.C. Gaughan also obtained invoices for services from contractors and provided those invoices, along with requests for payment and supporting documentation, to his superiors for approval.
The indictment alleges that beginning in at least June 2010 and continuing through April 2018, Gaughan caused ADW to pay invoices manufactured by Gaughan purportedly for anti-bullying and crisis intervention programs, as well as for software used to send mass messages to ADW’s students and families. To execute the scheme, Gaughan allegedly concealed his ownership and control of three companies, including by submitting forms using an alias and falsely certifying that he did not transact any business with ADW. According to the indictment, Gaughan then transmitted fraudulent invoices for these companies and persuaded ADW to issue checks for services that Gaughan knew the companies did not provide. Gaughan allegedly opened virtual and private mailboxes in order to receive the checks that ADW issued to pay for the fraudulent invoices that Gaughan manufactured and transmitted to ADW officials. The indictment alleges that Gaughan deposited the checks issued by ADW into the bank accounts he controlled, and converted the money to his personal use.
The charges in the complaint and the indictment are merely allegations, and the defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
This matter was investigated by the FBI, IRS-CI, and the SBA-OIG. Assistant U.S. Attorney Christine Macey of the Fraud Section of the U.S. Attorney’s Office for the District of Columbia and Assistant U.S. Attorneys Greg Bernstein and Jessica Collins of the U.S. Attorney’s Office for the District of Maryland are investigating and prosecuting the case, supported by Paralegal Specialist Quiana Dunn-Gordon. Assistant U.S. Attorney Arvind Lal and Special Assistant U.S. Attorney Steven Brantley are handling the seizure and forfeiture matters.
The public is urged to report suspected fraud schemes related to COVID-19 (the Coronavirus) by calling the National Center for Disaster Fraud (NCDF) hotline (1-866-720-5721) or by e-mailing the NCDF at firstname.lastname@example.org.
Citizens and others who suspect fraud or other criminal wrongdoing related to the pandemic should report it to the COVID-19 Pandemic Fraud Hotline by phone at 202-252-7022 or by email at USADC.COVID19@usdoj.gov.