Federal law enforcement authorities are alleging a Marina del Rey resident used shell companies to defraud the government of nearly $3.2 million in business aid.
Mark Farag Shehata, 70, a.k.a. "Samy Farag," "Mark Farag," and "Mark Fshehata," was arrested on June 12 by federal agents and was arraigned late Monday in United States District Court in downtown Los Angeles on seven counts of wire fraud.
Shehata pleaded not guilty and the case has been scheduled for a July 24 trial date.
According to a federal grand jury indictment returned on June 8 and unsealed Monday, Shehata organized and registered four limited liability companies that purportedly operated in Marina del Rey: Shirmak Group LLC; Cynergy Group Internatioal (sic) LLC; Global Network Investments LLC; and Alpha and Omega Group LLC.
Shehata is accused of submitting at least seven false and fraudulent loan applications under the Paycheck Protection Program (PPP), a financial aid plan Congress enacted to support businesses harmed by the COVID-19 pandemic’s economic impact. The PPP loans were to be used by recipients to pay only certain authorized business expenses, such as payroll, mortgage interest, lease, and utilities.
The case alleges the companies were just shells and none of the PPP loan proceeds Shehata allegedly fraudulently obtained were used to make payments to employees for payroll or any business expenses.
Shehata also submitted to the Small Business Administration and several lenders false applications requesting a total of $5,423,989 in PPP loans, and fraudulently obtained approximately $3,154,265 in PPP proceeds, the indictment alleges.
If convicted, Shehata would face a statutory maximum sentence of 20 years in federal prison for each count.
The local case is part of a national scandal related to defrauding COVID aid programs.
An Associated Press analysis found that fraudsters potentially stole more than $280 billion in COVID-19 relief funding; another $123 billion was wasted or misspent. Combined, the loss represents a jarring 10% of the $4.2 trillion the U.S. government has so far disbursed in COVID-relief aid.
That number is certain to grow as investigators dig deeper into thousands of potential schemes.
The U.S. government has charged more than 2,230 defendants with pandemic-related fraud crimes and is conducting thousands of investigations.
The pilfering was wide but not always as deep as the eye-catching headlines about cases involving many millions of dollars. But all of the theft, big and small, illustrate an epidemic of scams and swindles at a time America was grappling with overrun hospitals, school closures and shuttered businesses. Since the pandemic began in early 2020, more than 1.13 million people in the U.S. have died from COVID-19, according to the Centers for Disease Control and Prevention.
The health crisis thrust the Small Business Administration, an agency that typically gets little attention, into an unprecedented role. In the seven decades before the pandemic struck, for example, the SBA had doled out $67 billion in disaster loans.
When the pandemic struck, the agency was assigned to manage two massive relief efforts --the COVID-19 Economic Injury Disaster Loan and Paycheck Protection programs, which would swell to more than a trillion dollars. SBA’s workforce had to get money out the door, fast, to help struggling businesses and their employees. COVID-19 pushed SBA’s pace from a walk into an Olympic sprint. Between March 2020 and the end of July 2020, the agency granted 3.2 million COVID-19 economic injury disaster loans totaling $169 billion, according to an SBA inspector general’s report, while at the same time implementing the huge new Paycheck Protection Program.
In the haste, guardrails to protect federal money were dropped.
"If you open up the bank window and say, give me your application and just promise me you really are who you say you are, you attract a lot of fraudsters and that’s what happened here," said Michael Horowitz, the U.S. Justice Department inspector general who chairs the federal Pandemic Response Accountability Committee (PRAC).
PRAC was one of the agencies investigating the local case alongside the United States Department of Justice Office of Inspector General
The PRAC was established to serve the American public by promoting transparency and facilitating coordinated oversight of the federal government’s COVID-19 pandemic response. The PRAC’s 21 member Inspectors General identify major risks that cross program and agency boundaries to detect fraud, waste, abuse, and mismanagement in the more than $5 trillion in COVID-19 spending. The PRAC Fraud Task Force brings together agents from 15 Inspectors General to investigate fraud involving a variety of programs, including the Paycheck Protection Program. Task force agents who are detailed to the PRAC receive expanded authority to investigate pandemic fraud as well as tools and training to support their investigations.
Anyone with general information about allegations of attempted fraud involving COVID-19 can report it by calling the Justice Department’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.
