(The Center Square) – A real estate developer who was a part-time resident of Vancouver, Washington, received a federal prison sentence for fraudulently obtaining coronavirus pandemic relief program funds and laundering some of the proceeds while on supervised release for a previous fraud conviction.
Michael James DeFrees, 62, received a 21-month sentence and five years of supervised release. He must also forfeit $1.2 million and pay $1.3 million in restitution to the U.S. Small Business Administration.
“Michael DeFrees’s crimes demonstrated his indifference to both the many businesses suffering the economic effects of the COVID-19 pandemic and American taxpayers who funded the relief programs created to alleviate these impacts. Prosecuting COVID-19 fraud remains a top priority for the Department of Justice and our partners,” Ethan Knight, Chief of the Economic Crimes Unit for the U.S. Attorney’s Office, said in a statement from the U.S. Attorney for the District of Oregon.
Between April 2020 and April 2022, DeFrees used two separate business entities to get Economic Injury Disaster Loans and Paycheck Protection Program loans administered by the SBA under false pretenses. The EIDL and PPP programs let SBA provide low-interest loans to small businesses negatively impacted by the government response to the coronavirus pandemic.
DeFrees submitted multiple loan applications to the SBA and two banks in Washington state.
“In these applications, DeFrees indicated that he was the sole owner of two business entities—Gateway National Corporation, a construction company incorporated in Washington State, and Yacht Harbor, LLC, a real estate development company incorporated in Oregon—and that he, as the sole owner, had never been convicted of any disqualifying criminal offense or recently placed on parole or probation,” the release said.
However, that was not true. DeFrees was on probation for a 2017 felony conviction in the Western District of Washington for falsifying records in a bankruptcy proceeding.
Once he received these loan payouts, DeFrees laundered some of the money via a third business entity and spent the funds on personal expenses.
A federal grand jury in Portland returned a four-count indictment against DeFrees in May 2022. It charged him with two counts of wire fraud and one count of bank fraud and money laundering. He pleaded guilty to all four charges in October 2023.
The SBA Office of Inspector General, IRS-Criminal Investigation, the U.S. Treasury Inspector General for Tax Administration, and the FBI investigated the case, and Assistant U.S. Attorney Ryan W. Bounds prosecuted it.
SBA estimated in June 2023 that it had disbursed over $200 billion in potentially fraudulent coronavirus pandemic relief funds.
SBA has decided to prioritize fraud prevention over pursuing every fraud case, according to its website. It is working to improve government data-sharing, including government payroll data and tax identification data to verify applicant information.
Those with information about alleged or attempted coronavirus pandemic relief fraud can report it to the Justice Department’s National Center for Disaster Fraud (NCDF) Hotline at 866-720-5721 or by visiting the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.
