LOS ANGELES – Santa Clarita Valley man pleaded guilty today to a federal criminal charge that he fraudulently obtained more than $ 1 million in Paycheck Protection Program (P3) loans for his shell companies by submitting false tax documents and fraudulent employee information.
Raymond Magana, 40, of Santa Clarita, pleaded guilty to one count of fraud relating to a major disaster or emergency benefits.
According to its plea agreement, in May and June 2020, Magana submitted applications for PPP loans to banks containing false statements about the number of employees and the amount of salary 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 its name. In that request, Magana falsely stated that the company’s average monthly payroll was $ 376,167 and that it employed 40 workers. Magana admitted to submitting fraudulent tax documents showing $ 4,402,000 in annual salaries paid to 40 employees in 2019 and $ 852,000 paid in employee salaries in the first quarter of 2020.
IRS and California Employment Development Department records showed the company never reported paying any employees, and the underwriting record also did not include a list of employees or associates for the company. ‘company, according to an affidavit filed with a criminal complaint in the case.
Investigators then determined that Pico Rivera’s address listed as the headquarters of The Building Circle was a 980 square foot single-family home that appeared to be a residence and not a business. Ultimately, the loan application was approved and $ 940,416 was paid to Magana’s front 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 false tax documents and false employee information, and falsely claiming 1.73 million. dollars in employee wages.
When a bank manager contacted Magana after one of the business accounts receiving PPP funds was frozen due to suspicious activity, he told the bank “We have all the documents, we have been approved”, and he refused to accept. to return improperly obtained PPP funds, the affidavit states. The bank nonetheless froze the $ 940,416 in the defendant’s bank account and the defendant was unable to access it, the plea agreement says.
The actual loss from both approved and disbursed loans was $ 360,415, according to the plea agreement.
United States District Judge Stanley Blumenfeld Jr. has scheduled a sentencing hearing for May 11, when Magana faces a statutory maximum sentence of 30 years in federal prison.
The CARES (Coronavirus Aid, Relief, and Economic Security) law 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 under the CARES Act is the authorization of up to $ 349 billion in forgivable loans to small businesses for job retention and certain other expenses under the PPP. In April 2020, Congress authorized more than $ 300 billion in additional P3 funding. In December 2020, Congress authorized $ 250 billion in additional P3 funding.
The PPP allows small businesses and other eligible organizations to receive loans with a two-year term and an interest rate of 1%. Businesses must use the proceeds of the PPP loan for salary costs, mortgage interest, rent, and utilities. The PPP allows for the forgiveness of interest and principal if companies spend the proceeds of these expenses within a specified time frame and use at least a certain percentage of the loan for salary expenses.
In December 2020, Steven R. Goldstein, 36, of Northridge, Magana’s business partner, pleaded guilty to a single count accusing him of fraud in connection with a major disaster or emergency benefits. Goldstein has admitted to fraudulently obtaining $ 655,000 in PPP loans for his businesses by submitting false tax documents and false 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 U.S. Attorney Charles E. Pell of the Santa Ana branch is continuing this case.