CLEVELAND — The U.S. Small Business Administration approved $6.9 million in COVID-19 relief aid for 45 new Northeast Ohio agriculture businesses registered to three residential Northeast Ohio homes. We have tracked how those tax dollars were spent and independently verified the information Bloomberg News first reported last month.
Berries, beets and broccoli
The property at 27221 Forestview Ave. in Euclid doesn’t look like a business or a farm.
It looks like a house.
A small house.
But 5 On Your Side Investigators found the home is the registered address for 27 different agriculture-related companies that were approved for $4.2 million in taxpayer money from a program meant to help small businesses struggling due to the coronavirus pandemic.
The companies have names like Organic Ohio Berries, Ohio Natural Beets, and Ohio Organic Broccoli. None of the businesses were registered with the Ohio Secretary of State before May 1 of this year.
Small homes, big loans
Records reviewed by News 5 show the home is owned by Zaur (Zack) Kalantarli, an immigrant from Azerbaijan. Federal and state records show Kalantarli, his family members and associates also registered 10 new businesses with farming-related names at 310 S. Green Road in South Euclid. They were approved for $1.5 million in Economic Injury Disaster Loans.
They also registered eight similarly named businesses at 3132 W. 50th St. in Cleveland that received $1.2 million in pandemic aid.
In total, Kalantarli and five associates registered 72 businesses with agrarian-sounding names with the Ohio Secretary of State this spring that received at least $6.9 million in pandemic-related grants and loans.
Kalantarli’s attorney, Edward La Rue, declined multiple interview requests. He said he reached out to the U.S. Department of Justice to discuss the loans and that some of the loans will likely have to be repaid.
‘Potentially rampant fraud’
The Kalantarli-related loans are only one example of serious concerns about who was awarded money as part of the SBA’s $212 billion relief program.
An October report by the SBA’s inspector general found billions of dollars in potentially fraudulent loans were disbursed under the Economy Injury Disaster Loan program.
According to the report, "SBA approved $14.3 billion ($13.4 billion disbursed) in COVID-19 EIDLs to accounts that differed from the original bank accounts listed on the loan applications; $62.7 billion ($58.0 billion disbursed) in multiple (between 2 and 245) COVID-19 EIDLs to applicants using the same IP addresses, email addresses, bank accounts, or businesses listed at the same addresses; and approximately $1.1 billion in COVID-19 EIDLs and emergency advance grants to potentially ineligible businesses."
A July report also found “potentially rampant fraud” in the SBA EIDL program.
EIDL loans are usually used to help businesses damaged by hurricanes, tornadoes or other natural catastrophes, but the SBA was authorized to use the funds under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to assist small businesses struggling during the pandemic.
Since March, the SBA says Economic Injury Disaster Loans went to 3.65 million recipients totaling $191 billion during the fiscal year 2020.
The program has also given out $5.7 million advance grants totaling $20 billion, which do not have to be repaid.
SBA response
In a statement, Shannon Giles, a spokeswoman for the SBA, wrote, "The SBA office of Inspector General and the agency’s federal partners are working diligently to resolve the PPP and EIDL fraud incidents. The agency isn’t able to provide a time frame on the resolution of the many identity theft complaints."
"Evidence of waste, fraud, and abuse with any of SBA’s loan programs is not tolerated," Giles wrote. She encouraged anyone with knowledge of fraudulent loans to report fraud, waste, and abuse to the SBA.
When asked about the $6.9 million in loans awarded to companies registered at three Northeast Ohio homes, Giles wrote that the SBA does not comment on individual borrowers.
The EIDL program is separate from the Paycheck Protection Program, the $525 billion SBA program that uses banks to disburse small business loans to cover payroll and essential expenses, including rent and utilities.
The SBA was forced to release its data on the pandemic relief programs on December 2 after a federal judge ruled in favor of several news outlets that argued that information about how billions of U.S. tax dollars were distributed should be made available to the public.
Dramatically lower standards
Carolyn Ciccone, executive director of Accountable.US, a nonpartisan nonprofit government watchdog organization tracking coronavirus bailouts, said the SBA "dramatically lowered" routine standards for disbursing loans in the wake of the pandemic.
Ciccone said, “They (SBA) got rid of a lot of checks and balances within the agency that make sure the loans go to real businesses and businesses that need them."
“Now, we’re seeing the consequences of loans that went to people that shouldn’t have gotten them," Ciccone said.
Look up Covid-19 loans: Accountable.US Covid Bailout Tracker
Ciccone also expressed concern that widespread fraud, waste and abuse means small business owners who need funds did not receive pandemic relief loans.
“We are facing such economic hardship right now and there are communities all across the country that are facing really hard decisions around Christmas, around the end of the year, and so many businesses missed out on these government programs because big businesses, fraudsters, people who didn’t need them were able to cut to the front of the line,” Ciccone said.
Ciccone said more funding is needed for small businesses impacted by the pandemic. She said the SBA and Congress should determine how so much fraud happened and then fix the programs so they help the intended targets.
“It’s really important that we look at this program and make sure we’re getting the most bang for our buck,” Ciccone said.
“We need more vetting on the front end,” said Ciccone. “We need to not abandon the vetting processes that have been in place before."
Fake businesses, real consequences
Justin Herdman, the U.S. Attorney for the Northern District of Ohio, agreed there has been considerable fraud related to pandemic relief programs.
"In the wake of that urgency to get this money out the door, what has become apparent is there are a number of people who tried to take advantage of this," Herdman said. "There wasn’t a sufficient amount of time to vet these documents on the front end. We’re detecting a significant amount of fraud on the back end."
Herdman said recovering those taxpayer funds is a high priority for his office.
His office has already charged six individuals with fraud in cases unrelated to Kalantarli's businesses, including a Northeast Ohio father and son.
RELATED: Father, son accused of defrauding Paycheck Protection Program
Herdman said several investigations are currently underway.
"What looks like a common approach is that the people who have engaged in fraud have adopted is just outright falsification of the existence of businesses, of the existence of employees, they’ve submitted numerous false documents to support loan applications," Herdman said.
Herdman also said he is optimistic there will be real consequences for individuals who created those fake businesses.
"If you think you’re not going to get caught doing this, you’re wrong," he said.
Herdman had no comment on the government loans connected to Kalantarli and his associates. Kalantarli and his associates do not currently face any criminal charges.
