2 Florida men helped ring rip off federal loan program for $35 million, took cut of proceeds
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COVID-19 loan fraud in South Florida
South Florida, long known as the nation’s capital of fraud schemes, has incurred more than 140 PPP criminal cases over the past three years, according to the U.S. Attorney’s Office. Here are a few.
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In one of the biggest COVID-19 fraud schemes in the nation, two South Florida men have pleaded guilty to preparing dozens of bogus business loan applications while pocketing high fees as kickbacks for their services to obtain more than $35 million in pandemic relief loans guaranteed by the federal government.
James Stote, 55, of Hollywood, and Phillip Augustin, 52, who admitted that they ran a ring extending from Florida to Ohio, pleaded guilty Tuesday to conspiracy to commit wire fraud and now each faces up to 20 years in prison. They’re accused of pocketing millions of dollars in fees resulting from their 25 percent cut of every approved Paycheck Protection Program loan application — funds that they deposited in South Florida banks and used to purchase Rolex watches and jewelry that will now be seized by the feds.
As part of the same scheme, Diamond Smith, 37, of Miramar, was sentenced Thursday to one year and eight months after pleading guilty to conspiracy to commit wire fraud. Smith, a recording artist, obtained two PPP loans, for $426,717 and $708,065, and paid more than $250,000 to Stote and Augustin as kickbacks for their assistance in preparing and submitting the fraudulent loan applications, officials said.
Earlier this month, former NFL player Joshua Bellamy, who was released by the New York Jets in 2020, was sentenced to more than three years in prison after pleading guilty to a conspiracy to commit wire fraud in connection with the Stote-Augustin scheme. Bellamy, 32, of St. Petersburg, obtained $1.2 million in PPP loans for his company, Drip Entertainment LLC, and paid kickbacks of $311,000 for their services. Instead of using the loans for employee salaries, Bellamy spent $104,000 on luxury goods, including purchases at Dior, Gucci and jewelers. He also spent about $63,000 at the Seminole Hard Rock Hotel and Casino and withdrew $302,000, according to prosecutors.
A total of 25 people have been charged in Ohio, Florida and North Carolina for their participation in the Stote-Augustin ring, with 20 convictions so far, according to U.S. authorities.
“While many businesses in our communities relied upon relief funds to keep their doors open and employees paid, these defendants profited off a scheme that stole millions of taxpayer dollars intended for struggling businesses and spent it lavishly on themselves,” said First Assistant U.S. Attorney Michelle M. Baeppler for the Northern District of Ohio, where Stote and Augustin were charged with the wire-fraud conspiracy.
According to court documents, Stote and Augustin led a group that fraudulently obtained Paycheck Protection Program loans guaranteed by the Small Business Administration under the Coronavirus Aid, Relief and Economic Security Act. The legislation, passed after the pandemic swept across the United States in March 2020, provided nearly $650 billion worth of loans to help struggling businesses make their payrolls and rents. Under the system, banks reviewed and approved the loans while earning a small fee, but because of the emergency caused by the pandemic, numerous people like Stote and Augustin exploited the program to enrich themselves, authorities say.
Stote and Augustin initially obtained a fraudulent loan for Augustin’s company, Clear Vision Music Group LLC, using falsified documents. After that, they immediately began working to obtain larger PPP loans for themselves and their associates, according to the charging documents.
Stote and Augustin recruited additional PPP loan applicants and prepared and submitted fraudulent loan applications for them in exchange for a share of the loan proceeds, prosecutors said. The applications they submitted for all of the loans in the scheme relied on fake payroll numbers, falsified IRS forms and phony bank statements. Prosecutors said they submitted or facilitated at least 79 fraudulent loan applications worth at least $35 million.
Stote, Augustin and others are accused of obtaining other loans from the emergency SBA program for such companies as PM Autobody in Miami ($652,470), OMP Enterprises in Fort Lauderdale ($244,062) and USA Homes and Remodeling in Hollywood ($702,720), according to the affidavit.
“[The] defendants obtained these PPP loans both for their own companies and for others’ companies,” according to an FBI criminal affidavit. “When they obtained PPP loans for other companies, [they] expected to receive — and did receive — sizable kickbacks. To inflate the size of these PPP loans, and their corresponding kickbacks, [they] relied on a variety of false statements, including by submitting falsified bank statements and tax forms.”
As the nation’s No. 1 fraud capital, South Florida has led the financial crime wave that followed the passage of the CARES Act, according to federal prosecutors.
In South Florida, that’s included a businessman using PPP money to buy a $318,000 Lamborghini, a nurse alleged to have lied about his business to get $474,000 that was used in part to pay a Mercedes-Benz lease and child support, and a North Miami suburban couple that claimed to be farmers to qualify for $1 million in relief benefits.
The U.S. Attorney’s Office in South Florida has charged more than 60 people in COVID-19 relief fraud cases, mostly involving the PPP program, making it the nation’s leader in such prosecutions. Those fraud schemes have totaled loan requests for more than $80 million. Nationally, one study released in August estimated that up to 15 percent of PPP loans may have been fraudulent.
This story was originally published December 17, 2021 at 11:31 AM with the headline "2 Florida men helped ring rip off federal loan program for $35 million, took cut of proceeds."
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