Cleveland residents Sally Jung, 58, and Clifton Pape, 45, statutorily face $5 million fines and up to 10 years in prison each for allegedly running a company called My Buddy Loans, which applied for Economic Injury Disaster Loans (EIDLs) and EIDL advances from the Small Business Administration (SBA) on behalf of individuals who paid $1,083 as a “service” fee.
Word on the street was that My Buddy Loans could “help people” apply for and receive agricultural loans from the SBA, but the company was in fact applying for EIDLs with made up information that their clients never provided, according to a criminal complaint affidavit by a U.S. Secret Service agent.
The SBA provided advances of up to $10,000 to qualifying small businesses, a program offered in conjunction with the EIDL program. The grants would be disbursed even if the small business did not ultimately qualify for a loan, though as of now the funding for the grants has been depleted, according to the SBA. The EIDLs themselves are not forgivable, 30-year loans that small businesses may acquire to cover operating expenses.
Jung and Pape submitted hundreds of bogus applications for EIDLs, in almost all cases under the guise of applying for businesses that had 10 employees, which was the exact number required to receive a $10,000 grant, per the charging documents.
The U.S. Department of Justice (DOJ) said in a press release that they used false information on the applications, 130 of which the SBA granted, amounting to $1.3 million in funds stolen from the coronavirus relief program. They also procured more than three quarters of a million dollars from the “service” fees they charged according to the DOJ.
The criminal complaint affidavit does not mention a romantic relationship between Jung and Pape, though it does provide a narrative that alleges the two worked closely together to formulate the scheme along with other unnamed “subjects.”
Court documents discuss a number of people cooperating in the investigation who had applied for loans through My Buddy Loans, some of whom even participated in an undercover “controlled buy.”
Authorities say Jung and Pape went to town with the taxpayer loot, going on a go-karting excursion and even taking a trip to the La Cantera Resort and Spa in San Antonio. Pape may have even used part of the money to pay a speeding ticket in Cut and Shoot, a small town near Conroe.
Major fraud against the United States is an offense under federal law that covers fraud against “recovery or rescue plan provided by the Government.” The Secret Service is working in addition to other federal agencies investigating fraud related to COVID-19 relief programs.
Stephen J. Cox, the U.S. Attorney for the Eastern District of Texas, pointed out the essential role of small businesses and decried the fraudulent taking of coronavirus aid.
“At a time when small businesses — the engines of our economy in East Texas — most needed the help that the [SBA] was rushing to provide, these individuals took advantage of members of the public, depleting the available resources for small businesses and lining their own pockets with fraudulent gain,” Cox said.
Jung and Pape are hardly the first Texans to be accused or convicted of abusing the relief programs created by the CARES Act, a law that was hastily authored as the coronavirus began to take lives and as the nation’s economy began to deteriorate.
Samuel Yates, an East Texas man who was arrested in May of last year for $5 million in alleged Paycheck Protection Program (PPP) fraud, was formally indicted on Friday. He had previously only been charged via a criminal complaint.
According to legal filings in Yates’ case, a federal judge had granted requests by the U.S. attorney to extend the deadline to file an indictment. The judge’s order referenced a possible “pre-indictment resolution,” but did not specify what that might be. Yates agreed to the extensions and remains free on bond.
In another case, Lee Price — a Houston man who is awaiting trial for allegedly using swindled PPP funds to buy a Lamborghini, go to strip clubs, pay for an apartment, and make other high-dollar purchases — was released on a $50,000 bond but then taken back into custody after he violated his conditions of probation.
By way of sealed court filings in December, Price asked U.S. District Judge Vanessa Gilmore to grant “compassionate pretrial release” on medical grounds, a motion that Gilmore denied.
“The Court has no confidence or assurance that Mr. Price will abide by any conditions of release. No re-opening of the detention hearing is warranted or necessary,” Gilmore said in a ruling earlier this month. “If Mr. Price still has concerns about his medical care at the Joe Corley Detention Center, the Court will consider a request for the transfer to the Federal Detention Center…”
A number of other accused swindlers are awaiting trial, including Joshua Argires, who was indicted for stealing $1.1 million from the PPP, Michael McQuarn, who allegedly used stolen PPP funds to buy a 26’ Pavati Wake Boat and a Rolls Royce, and Dinesh Sah, who may have defrauded $24 million from the program.
Individuals who suspect illegal activity related to disaster relief funding should report it to the DOJ.
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Hayden Sparks is a reporter for The Texan. He has coached high school competitive speech and debate and has also been involved in community theater and politics. A native Texan, Hayden served as a delegate at the Republican Party of Texas Convention in 2016. He is on track to receive a bachelor’s degree in psychology from Liberty University. In his free time, Hayden is known to take walks around the neighborhood while listening to random music on Spotify.