Real estate developer in Washington sentenced for fraudulent activities related to pandemic relief funds

A real estate developer from Vancouver, Washington, who divides his time between his residence and work, has been sentenced to federal prison for fraudulently obtaining funds from the coronavirus pandemic relief program. This developer was also found guilty of laundering a portion of the proceeds while under supervised release for a previous fraud conviction.

Michael James DeFrees, aged 62, has been sentenced to 21 months in prison and will also be subject to five years of supervised release. In addition to his prison sentence, he has been ordered to forfeit $1.2 million and pay $1.3 million in restitution to the U.S. Small Business Administration.

“Michael DeFrees’s crimes showcased his lack of concern for the numerous businesses struggling due to the economic repercussions of the COVID-19 pandemic, as well as for the American taxpayers who supported the relief programs designed to mitigate these consequences. The Department of Justice and our partners continue to prioritize the prosecution of COVID-19 fraud,” stated Ethan Knight, Chief of the Economic Crimes Unit for the U.S. Attorney’s Office, as mentioned in a statement from the U.S. Attorney for the District of Oregon.

Between April 2020 and April 2022, DeFrees deceitfully utilized two different business entities to obtain Economic Injury Disaster Loans and Paycheck Protection Program loans from the SBA. These programs were designed to assist small businesses that suffered adverse effects due to the government’s response to the COVID-19 pandemic, offering low-interest loans.

DeFrees applied for loans from the SBA and two banks in Washington state, submitting multiple loan applications.

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According to a release, DeFrees stated in these applications that he was the exclusive 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. As the sole owner, he affirmed that he had not been convicted of any disqualifying criminal offense or recently placed on parole or probation.

Contrary to popular belief, it turns out that DeFrees was actually on probation due to a felony conviction back in 2017. Specifically, he was convicted in the Western District of Washington for falsifying records in a bankruptcy proceeding.

After receiving the loan payouts, DeFrees proceeded to launder a portion of the money through a third business entity. He then utilized the funds for his personal expenses.

In May 2022, DeFrees was indicted by a federal grand jury in Portland, facing a total of four charges. These included two counts of wire fraud, as well as one count each of bank fraud and money laundering. DeFrees ultimately pleaded guilty to all four charges in October 2023.

The case was investigated by the SBA Office of Inspector General, IRS-Criminal Investigation, U.S. Treasury Inspector General for Tax Administration, and the FBI. Assistant U.S. Attorney Ryan W. Bounds handled the prosecution.

In June 2023, the SBA estimated that it had distributed more than $200 billion in potentially fraudulent funds for coronavirus pandemic relief.

SBA is placing a greater emphasis on preventing fraud rather than pursuing every individual fraud case, as stated on its website. The organization is actively seeking to enhance data-sharing between government entities, such as government payroll data and tax identification data, to ensure the accuracy and legitimacy of applicant information.

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If you have any information regarding potential fraudulent activities related to the coronavirus pandemic relief, you can report it to the National Center for Disaster Fraud (NCDF) Hotline operated by the Justice Department.

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