Colorado office leads in rounding up stolen pandemic assistance money

More than four years on from the start of COVID-19, a grueling hunt continues for people who defrauded federal assistance programs designed to soften the economic blow of the pandemic. And the best team of investigators and prosecutors at clawing back ill-gotten dollars so far is based in Denver.

“Our office has been really successful in forfeitures,” said Matthew Kirsch, the acting U.S. Attorney for the District of Colorado. “We will be able to charge many more cases than we have already brought and we will hold people accountable.”

Of the $1.4 billion the government has seized in small-business loans wrongfully obtained under the Economic Injury Disaster Loan program, a key source of assistance to businesses, more than $1 billion has been secured through the DOJ’s Colorado District.

Kirsch said an important SBA loan processing center fell under the district’s jurisdiction and a super-computer helped flag fraud in more than 58,000 applications from multiple states. Colorado borrowers represented a fraction of those forfeitures.

Those seizures were civil cases and came primarily in fiscal 2021. Winning criminal convictions and prison sentences has proven a more painstaking process, although Congress helped out in August 2022 by extending the statute of limitations on SBA loan fraud from six to 10 years.

Kirsh’s team, which includes attorneys and investigators from other agencies, has charged 30 people and secured a dozen criminal sentences in Colorado, with more cases expected until time and money run out. Those convicted so far stole $18 million but attempted to take $29 million, Kirsh said.

Unlike some other financial crimes, Kirsh said it doesn’t look like pandemic fraud was undertaken primarily to support drug use or gambling activities. Most attempts appeared opportunistic rather than well-organized, and they typically left behind a paper trail that made it easy to prove fraud.

Last December, Chandler Simbeck was sentenced to 37 months in prison, three years of supervised release and ordered to repay $151,000 he had fraudulently borrowed from the federal government.

Simbeck admitted that he conspired with Russell Foreman, who he met at a halfway house, to submit fraudulent loan applications to the SBA using false information, according to federal prosecutors. Out of three falsified applications, one under Fusion Group, a newly formed company, made it through.

Fusion Group never generated revenues, never had employees and never engaged in any business of any type, contrary to the claims made on its SBA loan application, according to prosecutors.

After two federal marshals escorted him into the courtroom, Simbeck, wearing a yellow jumpsuit and orange Crocs, stood before U.S. District Court Judge Raymond Moore, who reprimanded him for disappearing for several months and delaying his case.

Foreman, his co-conspirator, had already received a 66-month prison sentence in August 2022 on money laundering and wire fraud charges.

“This was not just another fraud. This was taking advantage of the whole country in a sense,” Moore told Simbeck.

“I take accountability and responsibility for all of my actions,” Simbeck said.

Jonathan Towle, an assistant special agent with the Internal Revenue Service, the lead investigator on the Simbeck case, said many of those defrauding the government saw it as easy pickings and didn’t think through the ramifications.

“We have seen the money used for so many things, mostly for greed and enrichment,” Towle said.

Borrowers have used loan proceeds to pay off mortgages for themselves and relatives, to buy boats and vintage cars, to fund luxury vacations and to make down payments on resort properties, he said. But where there are assets, those can be reclaimed by the government.

In June, a jury found Shambrica Washington, who now resides in Parker, Texas, guilty on 31 counts including wire fraud, bank fraud, money laundering and false claims related to two EIDL and two Paycheck Protection Program loans she obtained worth nearly $500,000.

Tiny Toes and Tiaras, an online luxury baby boutique that Washington owned, misrepresented its number of employees, wages paid, revenues and operating costs, allowing for much larger loan distributions. Proceeds of the SBA loans were used to buy a car, a custom-built home, pay personal bills and fund elective surgery, among other things, according to federal prosecutors.

Not content with what she obtained, Washington applied for millions more in additional loans, grants and tax credits, including a $6 million grant for shuttered concert venues, according to the U.S. Attorney’s Office in Colorado.

A pending case involves former Denver hotelier Amin Suliaman, now a Miami resident, who was indicted in May on four counts of wire fraud tied to $450,000 he obtained in EIDL loans for what federal prosecutors say were inoperable businesses.

Suliaman was a co-owner of several Colorado businesses, including Nativ Denver and the Native Hotel Group. He pursued loan proceeds even though he had told a bankruptcy court that the companies involved were closed and not operating, according to the indictment.

A federal grand jury also returned an indictment in June against Castle Rock residents Joshua and Magdalena Lybolt, who are accused of taking out several fraudulent loans worth nearly $5 million under the name of four of their businesses — A Prime Real Estate Corp., Broker Life, JMXE Capital and Lifstyl Real Estate.

In January 2020, the couple told a bankruptcy court, under oath in a Chapter 7 case, that the businesses in question were no longer operational, resulting in $4.6 million in claims being discharged that April. They then used those businesses to obtain millions of dollars of government support over the following two years, according to the indictment.

The Lybolts didn’t use the money to make their creditors whole. Instead, they diverted taxpayer dollars to buy a 2022 Porsche Taycan, a 2016 Land Rover Range Rover, properties in Avon and Snowmass Village and memberships at Country Club at Castle Pines, according to the indictment.

“The indictment is merely an accusation and will be addressed in the appropriate forum at the appropriate time,” Todd Spodek of the Spodek Law Group, which is representing the Lybolts, told CBS Colorado in a statement in June. The case is set for trial in September.

Those who obtained federal funds fraudulently may have perceived it as a victimless crime, but their actions destroy trust in the system, Towle said.

And what is especially galling about pandemic fraud, Kirsch said, is that people with legitimate claims were denied help and suffered harm when loan funds ran out or when systems got bogged down, which was the case with unemployment insurance programs.

The federal government pushed out an unprecedented $4.6 trillion in pandemic assistance from March 2020 through the end of January 2023. Of that total, as much as $280 billion may have been stolen by those not entitled to the money, according to The Associated Press.

Much of the fraud centered in two areas — business loan programs offered through the U.S. Small Business Administration, which distributed $833 billion, and unemployment insurance relief, which totaled more than $701 billion, as of early 2023.

During the pandemic, federal agencies faced a dilemma. Should they try to get as much money out the door as quickly as possible to prevent an economic collapse or maintain more stringent safeguards to protect taxpayer dollars?

They erred on the side of speed, and tens of thousands took advantage, with some estimates putting fraudulent distributions in key programs at 10% or higher.