U.S. Attorney Reaches $1.47 Million Civil Fraud Settlement With Owner Of Footwear Business For Submitting False Information To Obtain Paycheck Protection Program Loans

Damian Williams, the United States Attorney for the Southern District of New York, and Amaleka McCall-Brathwaite, the Special Agent in Charge of the Eastern Regional Office of the U.S. Small Business Administration, Office of Inspector General ("SBA-OIG"), announced that the United States has filed and settled a civil fraud lawsuit against STEFANO MARONI for including false information in applications for Paycheck Protection Program ("PPP") loans he submitted on behalf of two related New York City-based companies he owned and operated, in violation of the False Claims Act. The settlement resolves claims that MARONI improperly obtained separate first-draw and second-draw PPP loans for GMI USA Corp. ("GMI") and Belovefine, Ltd. ("Belovefine"), when the two entities in fact operated essentially the same footwear design and importation business during the relevant timeframe, using a single office space and sharing the same employees. The U.S. alleged, among other things, that MARONI inflated payroll figures in the PPP loan and forgiveness applications by double-counting the salaries of shared employees when only one entity paid these employees' salaries a at a given time, and improperly sought loan forgiveness for certain payroll costs in excess of allowable forgiveness amounts.

Under the settlement agreement approved by U.S. District Judge Jennifer H. Rearden on December 9, 2024, MARONI will pay the U.S. $1,470,085.65 and has agreed to the entry of a consent judgment in that amount. As part of the settlement, MARONI admitted and accepted responsibility for certain conduct alleged in the Government's Complaint, including that he misrepresented and inflated the total payroll and employee headcounts in Belovefine's and GMI's first and second-draw PPP applications and loan forgiveness applications, which increased the amount of the PPP loans received and the amounts forgiven. Belovefine and GMI are no longer doing business or in operation.

The PPP was an emergency loan program established by Congress in March 2020 under the Coronavirus Aid, Relief and Economic Security ("CARES") Act and administered by the SBA. The PPP was created to provide forgivable loans to support small businesses struggling to pay employees and other business expenses during the COVID-19 pandemic. Under the PPP, eligible businesses could obtain SBA-guaranteed loans to spend on payroll costs, rent or mortgage, and other specified business expenses. The amount of PPP funds a business was eligible to receive was determined by the number of individuals employed by the business and average payroll costs. When applying for PPP loans, borrowers were required to certify that they were eligible for the requested loan and that the information provided in the loan application was true and accurate. To receive forgiveness, borrowers were required to submit signed loan forgiveness applications and documents containing certain information and certifications. In December 2020, Congress approved funding for a second round of PPP loans, which became available to borrowers beginning in January 2021.

U.S. Attorney Damian Williams said: "Stefano Maroni submitted false information and false certifications to receive Paycheck Protection Program loans to which he and his businesses were not entitled. PPP loans were intended to help small businesses stay afloat and retain their employees during the COVID-19 pandemic. This Office will continue its efforts to root out fraud and misconduct in the PPP and other pandemic-related assistance programs and hold those responsible accountable."

As alleged in the Complaint filed in Manhattan federal court:

Belovefine and GMI operated essentially the same footwear business from the same office space in Manhattan. At various times, MARONI alternately used Belovefine or GMI as the corporate entity performing certain business functions. During the relevant period, MARONI repeatedly transferred employees of the footwear business from GMI's payroll to Belovefine's payroll, or the reverse, even though there was no material difference in employees' job functions when they were paid by one company as opposed to the other.

MARONI sought and received first-draw and second-draw PPP loans on behalf of both Belovefine and GMI as though they were two distinct businesses, each with its own separate employee payroll. MARONI personally signed the PPP loan and forgiveness applications on behalf of Belovefine and GMI. In total, the companies received more than $1 million in PPP loan funds, nearly all of which was forgiven by the SBA.

MARONI misrepresented and inflated the total payroll and employee headcounts of Belovefine and GMI in their PPP applications and loan forgiveness applications, which increased the amount of the PPP loans received and the amounts forgiven. MARONI essentially double-counted the salaries of shared employees of both GMI and Belovefine, when in fact only one of these entities paid these employees' salaries and payroll taxes at a given time.

MARONI falsely certified in Belovefine's PPP loan applications that Belovefine had employees for whom it paid salaries and payroll taxes as of February 15, 2020, which was a PPP loan eligibility requirement. However, between January and April 2020, MARONI paid all employees of the footwear business through GMI's payroll. Belovefine had no employee payroll during this period and was thus ineligible to receive PPP loans.

Moreover, in GMI's first-draw PPP loan forgiveness application, MARONI misrepresented and inflated the total payroll amounts eligible for forgiveness because GMI had reduced covered employees' total wages by amounts in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter that preceded the relevant period covered by the loan.

As part of the settlement, MARONI admits, acknowledges, and accepts responsibility for the following conduct:

• MARONI was the sole owner and CEO of GMI and Belovefine. Both entities operated the same footwear business and shared the same leased office space in Manhattan. In 2019, the footwear business's employees were all paid by Belovefine. In early 2020, prior to applying for PPP loans, MARONI transferred all of the footwear business's employees to GMI's payroll.
• MARONI personally signed the PPP loan and forgiveness applications on behalf of Belovefine and GMI. These applications included certain inaccurate information. Prior to signing both the PPP loan and forgiveness applications, MARONI recklessly failed to confirm the accuracy of the information contained in the applications and that the applications complied with the PPP program's rules.
• During all periods covered by Belovefine and GMI's first-draw and second-draw PPP loans, the two companies shared the same office space at 3 Columbus Circle, Suite 2410, New York, New York. GMI listed this address in its PPP loan applications. However, Belovefine incorrectly listed a different suite number in its loan applications, which gave the impression that the entities were distinct and operated in separate locations.
• In order to be eligible for a PPP loan, the applicant needed to be in operation as of February 15, 2020, and have employees for whom it paid salaries and payroll taxes. The first and second-draw PPP applications submitted on behalf of Belovefine misrepresented that the company had employees for whom it paid salaries and payroll taxes as of February 15, 2020. As noted above, Belovefine actually had no employee payroll between January and April 2020, because all employees of the footwear business were being paid by GMI. Belovefine did not file an Employer's Quarterly Federal Tax Return for the first quarter of 2020.
• In Belovefine's and GMI's first- and second-draw PPP applications and loan forgiveness applications, MARONI misrepresented and inflated their total payroll and employee headcounts, which increased the amount of the PPP loans received and the amounts forgiven. During the periods covered by the loans, MARONI repeatedly transferred employees from one entity's payroll to the other's payroll. MARONI included the wages of the employees in both Belovefine's and GMI's PPP loan and forgiveness applications, when in fact only one entity was paying salaries and payroll taxes to employees of the footwear business at a given time.
• In GMI's first-draw PPP loan forgiveness application, MARONI falsely certified that GMI "did not reduce salaries or hourly wages of any employee by more than 25 percent for any employee during the Covered Period compared to the most recent quarter before the Covered Period." In fact, during the covered period for the forgiveness application, GMI had reduced the salaries of multiple covered employees by 50% as compared to their pay during the first quarter of 2020, the most recent quarter preceding the relevant covered period. Thus, MARONI misrepresented and inflated the GMI payroll costs that were eligible for forgiveness under the first-draw PPP loan.
• As a result of the above-referenced conduct and misrepresentations, MARONI requested and received PPP loans on behalf of Belovefine and GMI for amounts substantially in excess of what the footwear business was entitled to receive.

In connection with the filing of the lawsuit and settlement, the Government joined a private whistleblower lawsuit that had been filed under seal pursuant to the False Claims Act.

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Mr. Williams praised the SBA-OIG for its assistance with this case.

The case is being handled by the Office's Civil Frauds Unit. Assistant U.S. Attorney Samuel Dolinger is in charge of the case.

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