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Monofrax LLC, a New York-based company with foreign ownership, agrees to pay nearly $2 million to settle allegations of improperly obtaining a COVID-19 relief loan.
Michigan Bank Involved in Ineligible PPP Loan to Foreign-Owned Firm
Monofrax LLC, a manufacturing company based in Falconer, New York, has agreed to pay $1,977,119 to resolve allegations that it improperly secured a Paycheck Protection Program (PPP) loan through a Michigan bank, despite being ineligible under federal regulations. The settlement, announced by Acting U.S. Attorney Julie A. Beck for the Eastern District of Michigan, highlights the continued scrutiny of pandemic relief fraud.
What was the Paycheck Protection Program (PPP)
The PPP was designed in March 2020 to assist small businesses impacted by the economic downturn caused by COVID-19. However, the program had strict requirements, particularly regarding employee count and foreign ownership restrictions.
The Paycheck Protection Program (PPP) was a federal relief initiative established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide emergency financial assistance to small businesses impacted by the COVID-19 pandemic. Administered by the Small Business Administration (SBA), the program aimed to help businesses retain employees and cover essential expenses during economic disruptions.
Key Features of the PPP Loan Program:
- Forgivable Loans: Businesses that used at least 60% of loan funds on payroll and the rest on eligible expenses (such as rent, utilities, and mortgage interest) could have their loans fully forgiven.
- Loan Amounts & Caps: Loans were initially calculated based on 2.5 times a business’s average monthly payroll costs, with a cap of $10 million per loan in the first round.
- Eligibility Criteria: Small businesses with 500 or fewer employees (or larger businesses meeting SBA size standards) were eligible. However, certain industries had specific limits, and foreign-owned businesses faced restrictions.
- Expansion & Second Draw Loans: A second round of funding in 2021 (through the Economic Aid Act) allowed businesses that had already used their first PPP loan to apply for a second draw, with a stricter employee limit of 300 or fewer.
- Program Evolution & Oversight: Initially, PPP loans were distributed quickly with minimal vetting to expedite economic relief. However, this led to widespread fraud, prompting federal investigations and recovery efforts.
- End of the Program: The program officially ended on May 31, 2021, though investigations into fraudulent claims continue today.
The PPP was instrumental in saving millions of jobs but also faced challenges, including misuse by ineligible businesses, lack of proper oversight in early stages, and disparities in loan distribution, particularly among minority-owned businesses.
Second Draw PPP Loan Violated Eligibility Rules
In 2021, Monofrax obtained a second draw PPP loan, but at the time, the company was owned by a German private equity firm and affiliated with multiple global entities. According to U.S. government claims, Monofrax and its affiliates had more than 300 employees, exceeding the eligibility threshold.
“PPP loans were intended to help small businesses in the United States, and not large companies owned by foreign entities,” said Acting U.S. Attorney Julie A. Beck. “This settlement demonstrates our office’s continued commitment to hold accountable those businesses and individuals who obtained COVID-19 relief funds that they didn’t deserve.”
Federal Oversight and Potential Fraud Reporting
The case was managed by Assistant U.S. Attorney Anthony Gentner in partnership with the Small Business Administration’s (SBA) Office of General Counsel. While Monofrax did not admit liability, the settlement underscores federal efforts to recover fraudulently obtained pandemic relief funds.
Authorities encourage individuals with knowledge of COVID-19 relief fraud to report violations to the Department of Justice’s National Center for Disaster Fraud at 866-720-5721 or online at the NCDF Web Complaint Form.
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