With a plea scheduled next week, federal prosecutors in Maine will have secured their third admission of guilt in a case with a man accused of defrauding a business loan program developed in the early weeks of the COVID-19 pandemic.
But at a time when the watchdogs charged with overseeing COVID-19 relief spending say the Department of Justice is too busy to pursue small-dollar pandemic-related fraud cases, the Maine prosecutions stand out for their small dollar amounts.
The U.S. attorney’s office in Maine so far has charged three people with defrauding two different types of pandemic business loan programs that Congress approved in 2020 to keep businesses afloat at a time when many had to shut down or curtail their operations. The cases involve a total of just over $400,000.
But they’re just the start of such prosecutions in Maine, according to Assistant U.S. Attorney Andrew Lizotte, who has been the lead prosecutor on two of the three Maine cases.
“We see varieties of schemes and varieties of fraud with varying levels of success, but our office does consider it to be a significant factor, the fraud being committed with respect to CARES Act funds,” he said. Those are “funds that are really meant for a purpose that was at the time critical and remains critical.”
The three men charged so far in Maine — Nathan Reardon, Craig Franck and John J. Cavanaugh Jr. — are among more than 1,200 people nationwide charged with defrauding COVID-19 relief programs. Those programs have proven themselves especially susceptible to fraud, with the U.S. Secret Service estimating late last year that there had been nearly $100 billion in potentially fraudulent pandemic relief activity.
While the U.S. attorney’s office in Maine hasn’t come away with a multimillion-dollar criminal fraud case so far, it isn’t the office’s goal to go after big fish, Lizotte said.
Rather, the office is dedicated to prosecuting anyone who took advantage of COVID-19 relief programs, no matter the amount of money stolen, he said.
The number of federal prosecutions in Maine has been in line with those in neighboring New Hampshire and Vermont, though those two states have seen some larger cases.
In New Hampshire, four cases have so far materialized, the largest of which features two men accused of stealing $2 million in Paycheck Protection Program loans and another $3 million from the Economic Injury Disaster Loan program, the Keene Sentinel reported.
In another case, a man has been charged with fraudulently obtaining $50,000 in loans from the two programs.
In Vermont, a Chittenden County man was charged with submitting false information to obtain a $416,093 Paycheck Protection Program loan, and a Massachusetts man was charged with filing a fraudulent application to receive a loan worth more than $660,000 to start an alpaca farm in Vermont, VT Digger reported.
In Maine, Nathan Reardon was the first to be charged in the state for lying to obtain a Paycheck Protection Program loan. He obtained a $60,000 loan in 2020 by falsifying information about payroll for one of his businesses. He mistakenly received another $30,000 after he was denied a second, $60,000 loan.
He pleaded guilty last month to five counts of bank fraud as part of a plea bargain.
Reardon spent the fraudulently obtained money on personal items including a men’s 14-carat yellow gold wedding band, clothing, shaving products, toys, an LED barber pole light and a pair of caiman skin cowboy boots, a court affidavit said. Caimans are a species related to alligators found in Central and South America.
Reardon’s case involved less money than the case of Craig Franck of Levant, who is scheduled to admit Tuesday to defrauding two pandemic business loan programs.
Franck is expected to admit that he used $321,560 from the Paycheck Protection Program and the Economic Injury Disaster Loan program after he lied about how much two companies he formed made and the number of employees who worked for him.
In August 2021, Franck pleaded guilty in a Florida court to stealing between $20,000 and $100,000 in that state.
In Maine’s third case, John J. Cavanaugh, Jr., 52, of Yarmouth admitted that he made false statements to the Small Business Administration to qualify for an Economic Injury Disaster Loan. At the time, he was on supervised release ahead of a trial for Social Security fraud and aggravated identity theft stemming from a 2016 incident.
On an online application for the loan he completed in April 2020, Cavanaugh was asked if he was the subject to an indictment or other criminal charges. He falsely answered “no,” to the question, according to court documents.
Cavanaugh pleaded guilty to aggravated identity theft and to making a false statement to the Small Business Administration in September 2021. However, the federal government dropped the false statement charge last month.
Pandemic relief measures — particularly the Paycheck Protection Program and the Economic Injury Disaster Loan program as well as expanded unemployment benefits — have been particularly susceptible to fraud largely because of how fast the programs were rolled out early in the pandemic, Lizotte said.
The speed resulted in less due diligence than usual being required in loan application reviews, he said.
Many of the relief programs, stemming from multiple congressional acts and totaling $5 trillion in funds, relied too heavily on self-certified statements and information, according to the Pandemic Response Accountability Committee, the independent committee of watchdogs overseeing pandemic relief spending.
That made it easier for people who wanted to take advantage of the programs to lie and eventually secure funds, Lizotte said.