In June, New Jersey Attorney General Gurbir Grewal joined more than 40 other states in suing drugmakers over an alleged multiyear price-fixing scheme, accusing the companies of colluding to jack up prices on topical medications.
Among the more than two dozen firms named in the lawsuit were 15 New Jersey pharmaceutical companies.
According to the complaint, officials at those companies regularly exchanged phone calls and text messages, and sometimes met at “posh” industry dinners, as they worked to set prices and avoid bidding against each other on the generic medications they manufacture.
The attorney general’s office called the collusion “rampant” and said the profits made from the scheme were significant.
But even as that investigation was unfolding, two of the New Jersey companies, G&W Laboratories and Teligent, were approved for millions of dollars in government-backed coronavirus relief loans, federal records show. Both were granted forgivable loans in April under the Paycheck Protection Program, which was part of the $2.2 trillion CARES Act that rushed through Congress as the contagion shut down the country.
G&W, based in South Plainfield, received between $2 million and $5 million, according to federal records that only detail awards in broad amounts. Teligent got $3.3 million, the publicly traded company based in Buena disclosed recently. Neither G&W nor Teligent returned phone calls or emails requesting comment for this story.
And the two pharma firms were not the only New Jersey-based companies with recent fraud accusations to benefit from the taxpayer-funded stimulus program, which sought to reward businesses that kept their workers off unemployment as the economy cratered.
A review by NJ Advance Media revealed more than a dozen loans went to companies that have been sued or paid settlements over alleged fraudulent business practices in New Jersey. They included construction contractors, technology companies and car dealerships that ran afoul of federal or state prosecutors — among them a builder once accused of cheating its workers and covering it up by falsifying payroll records, a key component of how lenders calculated PPP awards.
Those businesses likely represent the tip of the iceberg, especially considering the companies that received loans of less than $150,000 — which number more than 65,000 in the Garden State alone — have never been named by the Treasury Department.
Those findings raise questions about the propriety of the federal government bailing out organizations that are accused of breaking the law or that have paid settlements to make those allegations go away.
Consider that companies with checkered pasts were able to obtain stimulus money when an individual facing legal trouble would often be excluded from government assistance. People with drug convictions are limited in the student aid they’re eligible for, and many people with felony records can’t get housing vouchers, according to the federal government.
But with PPP, civil woes — and even some criminal ones — didn’t necessarily disqualify a business.
“It is highly questionable that these companies that have been taking advantage of workers, taking advantage of the federal government, taking advantage of state governments were able to access these funds,” said Jenna Kruse, a spokeswoman for Accountable.us, a Washington nonprofit that is critical of how PPP was administered.
“For a program with a finite amount of money, it should have been part of the qualifying standards,” Kruse said.
According to Good Jobs First, a nonprofit organization that tracks state and federal violations by companies, 1,327 New Jersey businesses that received CARES funding — money totaling more than $1 billion — had some form of government violation against them. Nationally, more than 43,000 companies did, despite paying a total of $13 billion in penalties to state and federal regulators over the past decade.
The attention comes as the Small Business Administration has begun receiving applications for loan forgiveness for PPP, which doled out $525 billion to 5.2 million companies in just four months. Across the U.S., a trickle of criminal prosecutions involving the program have been announced, including of a Florida man charged with buying a $318,000 Lamborghini with the money and an Atlanta reality TV personality who authorities allege helped himself to jewelry, a Rolex watch and a Rolls-Royce Wraith.
This month, federal prosecutors in New Jersey charged a Bergen County-based attorney with fraudulently getting $9 million in loans and then using the money to buy a nearly $1 million home in Cresskill and invest millions more in the stock market. Jae H. Choi, 48, of Cliffside Park, faces counts of bank fraud and money laundering.
Those follow a massive program that sought to seed money across the country as quickly as possible during a national emergency, but without the kinds of safeguards that government funding typically carries.
“There wasn’t much screening going on. There weren’t really strict guidelines written into the legislation,” said Phil Mattera, research director at Good Jobs First. “Either they didn’t anticipate it or they didn’t care.”
To apply for PPP, businesses had to state that the pandemic’s economic uncertainty made the loans necessary to support their ongoing operations. Applicants were required to certify that they were “not engaged in any activity that is illegal under federal, state and local law,” and to say whether the company or its owners have recently faced felony charges.
Steve Bulger, a regional administrator of the Small Business Administration, would not discuss individual loans. But he acknowledged that eligibility rules surrounding PPP were less stringent than other programs the SBA oversees.
“Typically, a loan review for one of our standard loan products, if I may use the term, is much more thorough,” Bulger said.
He said the federal government will aggressively pursue any business that took advantage of PPP. Treasury Secretary Steven Mnuchin has vowed that loans of $2 million or more will be audited, and the SBA’s inspector general has a hotline and online form where suspicions of abuse can be reported, Bulger said.
“We are fully expecting that we will be auditing a lot of other loans too,” Bulger said. “Especially if we are tipped off or we just don’t feel that it is right.”
NJ Advance Media identified companies through a database of loans released by the Treasury Department in July after complaints over the program’s transparency. Under PPP, applicants were eligible for up to 2½ times their monthly payroll costs, with the loans carrying a big incentive — if a business spent the money on salaries and expenses such as rent and utilities, the debt will be forgiven, turning it into a grant.
Among those awarded money was Ranco Construction of Southampton in Burlington County, which was approved for $350,000 to $1 million in May.
Two years ago, Ranco agreed to pay a $1.5 million settlement after a whistleblower alleged the company had repeatedly taken public construction work while failing to pay its workers prevailing wages, as required under state and federal law. The suit said Ranco systematically underpaid some of its employees and falsified payroll records to conceal it from regulators.
The settlement, which did not contain an admission of liability by Ranco, was trumpeted by both state and federal prosecutors, who said businesses that game the system must be held to account.
“The rules are simple: If a construction company wants to do business with the state of New Jersey, it has to pay its workers a fair wage,” Grewal, the attorney general, said in a statement at the time. “Ranco took the state’s money but then failed to keep up its end of the bargain.”
Scott Barry, Ranco’s president, did not return a phone call seeking comment.
One manufacturing company that recently paid a federal settlement defended its decision to apply for PPP money, saying they had “absolutely nothing whatsoever” to do with each other.
United States Technologies, a Fair Lawn firm that builds electronics, agreed this year to pay $525,000 to the federal government after allegations it sold the Air Force bogus parts that were used in a weapons system. The settlement, in lieu of a lawsuit, was announced by the U.S. Attorney’s Office in January.
Four months later, U.S. Technologies received $350,000 to $1 million in PPP funding, records show.
In an interview with NJ Advance Media, company president Adam Rachlin noted the settlement contained no admission of wrongdoing.
“All it was is that the government made an allegation, we had a difference of opinion about it, and like most companies we decided to settle,” Rachlin said. “There was no criminal charges. There was no court case. There was no wrongdoing. Nothing.”
Rachlin said the company employs 40 people, including contractors, with the loan “doing what it was supposed to do.”
“We’re a small business. We employ good people. We provide services, both to the government and to the public,” Rachlin said.
Since its inception, PPP has generated controversy, with critics questioning funding for charter schools, publicly traded companies, religious groups and private prep schools with well-heeled parents and alumni.
The Government Accountability Office, a nonpartisan Congressional watchdog agency, warned in June of a “significant risk” of fraud with PPP, given the number of loans, the speed at which they were approved and the limited safeguards they carried. This month, staff on the Democratic-led House Select Subcommittee on the Coronavirus Crisis said their preliminary analysis suggested that “tens of thousands of loans” could be “subject to fraud, waste, or abuse.”
Amid lobbying by business groups, Congress is considering proposals to remove hurdles in the loan forgiveness process — among them a bill proposed by a bipartisan group of senators that include New Jersey’s Bob Menendez that would all but automatically forgive any loan of under $150,000.
“Struggling small businesses in New Jersey that received PPP loans to stay alive during the pandemic should not face a mountain of paperwork and a complex, time-consuming, costly, bureaucratic process just to find out whether or not they have to pay it back,” Menendez, a Democrat, said in June.
The Small Business Administration calls PPP a success, saying that in New Jersey, it provided $17.4 billion in critically needed funds to 157,405 small businesses.
In April, C. Abbonizio Contractors was one of those businesses, when it was approved for a loan of $1 million to $2 million.
Six weeks later, the Gloucester County construction company was sued by federal prosecutors in New Jersey, who accused it of defrauding the U.S. government during a massive highway project involving the reconfiguration of the interchanges of I-95, I-76 and Route 42 in Camden County.
The lawsuit claims that C. Abbonizio, a $39 million subcontractor on the project, concocted a scheme to avoid a requirement that a portion of the work go to minority- or woman-owned businesses. The company used fake invoices and sham business relationships to claim that mandate was being met, while still using its usual suppliers, the complaint charged.
To NJ Advance Media, the Sewell-based company declined to comment on the suit or the PPP loan. In a legal response last month, attorneys for C. Abbonizio denied wrongdoing in the interchange project, calling the company “a prominent, family-run New Jersey union contractor” that has never been in trouble.
“Throughout its history, CAC has been a responsible industry contractor with an unblemished business representation,” the filing said.
Questions about businesses that benefited from the country’s coronavirus relief efforts go beyond PPP, and to the larger CARES Act.
Caldwell University, a private Catholic school in Essex County, received more than $2 million as part of the Higher Education Emergency Relief Fund, another piece of the stimulus law.
Earlier this year, before the outbreak ravaged the state and upended life, Caldwell agreed to pay the federal government nearly $4.9 million to settle a civil case that charged the university defrauded a GI Bill program for post-9/11 veterans by offering bogus online classes.
The courses were actually developed and taught by an unapproved Pennsylvania correspondence school, Ed4Mil, though Caldwell University billed the Department of Veterans Affairs 10 to 30 times what that school typically charged, the U.S. Attorney’s Office said.
In total, the government paid more than $24 million in tuition benefits to the university, which turned over 85% to 90% to Ed4Mil, according to court records.
David Alvey, founder of Ed4Mil, was sentenced to five years in prison in 2018 for his role in the scheme. Helen Sechrist, a former Ed4Mil employee, and Lisa DiBisceglie, a former Caldwell associate dean, were both sentenced to three years’ probation.
The university’s settlement was announced in January.
Still, when federal relief money started flowing to higher education this spring, Caldwell was included in those awards. A university official said the fraud case and the CARES money have nothing to do with each other.
“Caldwell agreed to return money to the government that was directed to Caldwell as a result of a fraud scheme perpetrated by a contract partner, a relationship that ended more than seven years ago,” said Colette Liddy, spokeswoman for the school. “Caldwell is committed to meeting its obligations to the VA. Any relief Caldwell has received as a result of the pandemic will only be used to offset the devastating impact to the University caused by the virus.”
Under the CARES Act, half of that money, a little more than $1 million, is going to provide emergency grants to students affected by COVID-19. The university’s website said students were sent $500 checks starting in May.
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Riley Yates may be reached at [email protected].
Payton Guion may be reached at [email protected].
