Sarah Martinez remembers the crushing weight of uncertainty that settled over her small bakery in March 2020. Like millions of business owners across the country, she watched her daily customer flow disappear overnight as pandemic lockdowns took effect. The federal and state relief programs felt like lifelines – emergency funding designed to keep small businesses like hers afloat during an unprecedented crisis.
What Sarah didn’t know was that while she struggled to navigate legitimate relief applications and keep her employees paid, fraudsters were already working to exploit the very programs meant to help people like her. Their schemes would eventually steal over a million dollars from funds desperately needed by genuine small businesses fighting to survive.
This stark reality became clear when nine individuals recently pleaded guilty to orchestrating a sophisticated COVID loan scheme that targeted New York’s Empire State Development Pandemic Small Business Recovery Grant Program. Their actions represent more than just financial fraud – they stole hope from legitimate business owners who were counting on that support to weather the storm.
The Anatomy of a Pandemic Fraud
The COVID loan scheme that ensnared nine defendants began in June 2020, just months after the pandemic forced widespread business closures. According to prosecutors, these individuals saw opportunity where others saw crisis, crafting elaborate lies to access funds they had no right to claim.
Queens District Attorney Melinda Katz and New York State Inspector General Lucy Lang announced the guilty pleas on Friday, revealing the scope of a fraud that exploited one of the most vulnerable periods in recent American history. The defendants didn’t just steal money – they stole from a program specifically designed to help struggling businesses survive an unprecedented global crisis.
“These nine defendants admitted to stealing thousands of dollars in state funds intended to support struggling businesses during the COVID-19 pandemic,” Katz explained. “The funds were critical to helping New Yorkers survive an unprecedented crisis.”
The scheme operated through a simple but effective method: creating fake or using defunct companies to apply for relief grants. Each application claimed financial hardship due to COVID-19, with the applicants certifying that grant money would cover legitimate business expenses like payroll, rent, utilities, and supplies.
But investigators discovered a different story when they followed the money trail. Instead of supporting business operations, most funds moved almost immediately into personal bank accounts. Some defendants even wired portions of the stolen money to accomplices, creating a network of fraud that stretched beyond the original applicants.
Following the Money Trail
The investigation revealed the true scope of the COVID loan scheme through meticulous financial analysis. When authorities examined business bank records tied to the defendants and their supposed corporations, they found a telling pattern: no legitimate business activity existed before the grants were issued.
Here’s what investigators uncovered:
- No documented business revenue prior to receiving grants
- No recorded business expenses that matched application claims
- Tax returns that didn’t reflect actual financial activity
- Immediate transfers of grant money to personal accounts
- Wire transfers to accomplices outside the primary scheme
| Scheme Component | Details | Red Flags |
|---|---|---|
| Fake Companies | Created or used defunct businesses | No prior business activity |
| False Applications | Claimed COVID-19 financial hardship | No supporting documentation |
| Money Movement | Immediate transfers to personal accounts | No business expenses covered |
| Total Theft | Over $1 million stolen | $760,000 already recovered |
The financial records painted a clear picture of intentional fraud. These weren’t struggling business owners making desperate decisions – they were calculated fraudsters who saw pandemic relief as an opportunity for personal gain.
“Exploiting disaster relief funds for personal gain is both criminal and shameful at any time, but particularly during a global health crisis,” said Inspector General Lucy Lang. “New York will not stand for putting greed above the public good.”
Real Consequences for Real People
The impact of this COVID loan scheme extends far beyond the immediate financial loss. When fraudsters steal relief funds, they’re taking money away from legitimate small businesses that desperately need support to survive economic hardship.
The defendants pleaded guilty to various charges between May 2025 and February 2026 in Queens Supreme Court. They faced charges of grand larceny in the fourth degree and petit larceny. The court ordered them to pay $1,091,720 in restitution, with $760,000 already returned to the state.
Among the defendants, Mahbub Malik, 41, of Astoria, received a three-year conditional discharge after pleading guilty to grand larceny in the fourth degree. The relatively light sentences reflect plea agreements that prioritized restitution over lengthy prison terms.
But the real victims weren’t the state coffers – they were small business owners who either couldn’t access funds because of depleted programs or faced increased scrutiny due to fraud concerns. Every dollar stolen from relief programs represents a small business that might have stayed open, an employee who might have kept their job, or a family that might have avoided financial ruin.
The scheme also undermines public trust in emergency relief programs. When people see others exploiting crisis aid for personal gain, it creates cynicism about government assistance programs that could be vital during future emergencies.
“The defendants are now required to make restitution,” Katz noted, but the damage to legitimate businesses who couldn’t access these funds may never be fully repaired.
This case serves as a reminder that pandemic relief fraud wasn’t a victimless crime. Every fraudulent application processed meant fewer resources for legitimate applicants, creating a ripple effect that touched countless small businesses across New York State.
The investigation and prosecution of this COVID loan scheme also highlight the importance of robust oversight in emergency relief programs. While speed was essential during the pandemic crisis, the rush to distribute aid created opportunities for fraud that investigators are still uncovering years later.
FAQs
What was the Empire State Development Pandemic Small Business Recovery Grant Program?
This was a New York state program designed to provide financial assistance to small businesses struggling due to COVID-19 pandemic impacts.
How much money was stolen in this COVID loan scheme?
The defendants stole over $1 million from the relief program, though $760,000 has already been recovered as restitution.
What charges did the defendants face?
They pleaded guilty to grand larceny in the fourth degree and petit larceny in Queens Supreme Court.
How did investigators catch the fraud?
Authorities conducted extensive reviews of business bank records and found no legitimate business activity prior to grant issuance.
What happens to the recovered money?
The $760,000 already recovered has been returned to the state, with additional restitution payments still required.
Were these the only people involved in pandemic relief fraud?
No, this represents just one case among many instances of COVID relief fraud that prosecutors continue to investigate nationwide.
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