District Man Pleads Guilty in Schemes to Defraud Small Business Pandemic Relief Programs and the Archdiocese of Washington
Defendant Stole More Than $2 Million from Paycheck Protection Program for Spending Spree That Included Purchases of House, Car, and Yacht
WASHINGTON – Kenneth Gaughan, 43, of Washington, D.C., pleaded guilty today to carrying out two separate financial schemes. In one, he fraudulently obtained more than $2.1 million in federal Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDL). In the other, he embezzled more than $438,000 in funds from the Catholic Archdiocese of Washington, D.C., where he was previously employed as Assistant Superintendent.
The announcement was made by U.S. Attorney Matthew M. Graves, Darrell Waldon, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation, Washington, D.C. Field Office, Thomas J. Sobocinski, Special Agent in Charge of the FBI’s Baltimore Field Office, and Amaleka McCall-Brathwaite, Special Agent in Charge of the U.S. Small Business Administration, Office of the Inspector General, Eastern Region.
Gaughan, who used the alias of Richard Strauski, carried out his scheme targeting federal funds from at least March 2020 through August 2020. The PPP loans were created through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. These forgivable loans were to be used by businesses and organizations for payroll costs, interest on mortgages, rent and utilities. The EIDL loans, part of a program run by the Small Business Administration, also are designed to help businesses and organizations facing hardship.
In Gaughan’s case, he used funds from the two programs, in part, to purchase a $300,000 yacht, a $1.13 million rowhouse, and a $46,000 luxury sports sedan.
“While small businesses were struggling to stay afloat, Kenneth Gaughan stole taxpayer dollars to fund his lavish lifestyle, home, car, and yacht,” said U.S. Attorney Graves. “These emergency funds were intended to help our small businesses weather the COVID-19 pandemic, not line the pockets of fraudsters. Yet this defendant brazenly undertook his scheme even after stealing hundreds of thousands of dollars from his former faith-based employer.”
“Kenneth Gaughan saw an opportunity to enrich his lifestyle by defrauding taxpayers and diverting funds meant to help struggling businesses during one of our nation’s most difficult times,” said IRS-CI Special Agent in Charge Waldon. “Our IRS-CI special agents will continue to lead COVID-related fraud cases and work with our law enforcement partners to bring these criminals to justice.”
“Mr. Gaughan was so emboldened by deceiving a church for several years he then turned his deception to the government, stealing funds that were meant to be a lifeline for struggling businesses and greedily using them to satisfy his own materialistic desires,” said FBI Special Agent in Charge Sobocinski. “The FBI, and our law enforcement partners, will continue to diligently investigate these crimes of fraud and hold those individuals accountable.”
“Greed has no place in SBA’s programs that are intended to provide assistance to the nation’s small businesses struggling with the pandemic challenges,” said SBA-OIG Special Agent in Charge McCall-Brathwaite. “Our Office will remain relentless in the pursuit of fraudsters who seek to exploit SBA’s vital economic programs. I want to thank the U.S. Attorney’s Office and our law enforcement partners for their dedication and commitment to seeing justice served.”
Gaughan was arrested in both cases on Aug. 11, 2020. He pleaded guilty in the U.S. District Court for the District of Columbia to three counts: one count of wire fraud and one count of money laundering in the PPP and EIDL case, and one count of wire fraud in the case involving the Archdiocese. Gaughan is scheduled to be sentenced by the Honorable Tanya S. Chutkan on June 15, 2022.
The wire fraud charges each carry a statutory maximum of 20 years in prison. The money laundering charge carries a statutory maximum of 10 years in prison. Gaughan will be required to pay restitution for the PPP and EIDL fraud in the amount of $2,182,465 and to the Archdiocese in the amount of $438,200. He will also be required to pay a forfeiture money judgment. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
According to the government’s evidence, in the course of his scheme, Gaughan sought over $2.7 million in PPP loans on behalf of nine companies. Some of the applications were submitted in his own name, and others were in the name of another individual. Gaughan received approximately $2.1 million in PPP and EIDL funds through applications to SBA lenders for the companies, which falsely purport to register emotional support animals. Gaughan 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. At the time of 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 also filed a civil forfeiture complaint against a home Gaughan purchased with his fraudulently obtained proceeds. Additionally, the government filed a lis pendens on that property to give proper notice of the forfeiture litigation and to prevent the sale of the property prior to the resolution of this case.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was designed to provide emergency financial assistance to millions of Americans suffering from the economic effects of the COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of forgivable loans to small businesses for job retention and certain other expenses through the PPP. 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.
In the second scheme, Gaughan admitted defrauding the Archdiocese of Washington of over $438,000. Gaughan began working for the Archdiocese as its Director of Counseling in 2008 and was later promoted to Assistant Superintendent. In his role, Gaughan was responsible for recruiting and acting as the point of contact for contractors who provided various services to the Archdiocese. These included contractors that could help the Archdiocese implement anti-bullying, crisis intervention, and professional development programs at the approximately 95 Catholic schools overseen by the Archdiocese 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.
Beginning in at least June 2010 and continuing through April 2018, Gaughan caused the Archdiocese 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 Archdiocese students and families. To execute the scheme, Gaughan concealed his ownership and control of three companies, including by submitting forms using an alias. Gaughan then transmitted fraudulent invoices for these companies and persuaded the Archdiocese to issue checks for services that Gaughan knew the companies did not provide as represented. Gaughan opened virtual and private mailboxes to receive the checks issued to pay for the fraudulent invoices. He deposited the checks into the bank accounts he controlled and converted the money to his personal use.
The PPP and EIDL matters were investigated by the IRS-CI, FBI, and SBA-OIG. The matter involving the Archdiocese of Washington was investigated by the FBI.
The cases were prosecuted by Assistant U.S. Attorney Christine Macey of the Fraud, Public Corruption, and Civil Rights Section of the U.S. Attorney’s Office for the District of Columbia; Assistant U.S. Attorney Jessica Collins of the U.S. Attorney’s Office for the District of Maryland; and Assistant U.S. Attorney Greg Bernstein, formerly of the U.S. Attorney’s Office for the District of Maryland. They were supported by Paralegal Specialists Michon Tart and Quiana Dunn-Gordon, Victim-Witness Advocate Yvonne Bryant, and Supervisory Litigation Technology Specialist Leif Hickling. The seizure and forfeiture matters were handled by Assistant U.S. Attorney Arvind Lal, Special Assistant U.S. Attorney Matthew Grisier, former Special Assistant U.S. Attorney Steven Brantley, and Senior Attorney Advisor Jim Alexander of the Money Laundering and Asset Recovery Section.
On May 17, the Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by, among other methods, augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. For more information on the department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.
Anyone with information about allegations of fraud related to COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud Hotline at 866-720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.