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Three Perth Amboy Residents Charged with $2.1 Million in PPP Fraud, Loan Fraud Schemes

Perth Amboy

Three Middlesex County residents were arrested today for their roles in fraudulently obtaining over $2.1 million in federal Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDL), U.S. Attorney Philip R. Sellinger announced.

According to U.S. Attorney Sellinger, Arlen G. Encarnacion, 35, Kent Encarnacion, 28, Jacquelyn Pena, 36, all of Perth Amboy, are charged by separate complaints with bank fraud and money laundering. Additionally, Arlen G. Encarnacion is charged with wire fraud. 

According to documents filed in these cases and statements made in court:

Arlen G. Encarnacion submitted 11 fraudulent PPP loan applications to two different lenders on behalf of nine purported businesses and three fraudulent EIDL applications to the Small Business Association (SBA) on behalf of three purported businesses. 

Kent Encarnacion submitted one fraudulent PPP loan application to one lender on behalf of a purported business.

Jacquelyn Pena submitted three fraudulent PPP loan applications to two different lenders on behalf of three purported businesses.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a federal law enacted on March 29, 2020, designed to provide emergency financial assistance to the millions of Americans suffering the economic effects caused by the COVID-19 pandemic. 

One source of relief provided by the CARES Act was the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses through the PPP. 

In April 2020, Congress authorized over $300 billion in additional PPP funding.

The PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent. 

PPP loan proceeds must be used by businesses on payroll costs, interest on mortgages, rent, and utilities. 

The PPP allows the interest and principal on the PPP loan to be forgiven if the business spends the loan proceeds on these expense items within a designated period of time after receiving the proceeds and uses at least a certain percentage of the PPP loan proceeds on payroll expenses.

The applications the defendants each submitted allegedly contained fraudulent representations to the participating lenders and the SBA, including bogus federal tax return documentation. 

The defendants also each fabricated the existence of employees and the wages paid to the non-existent employees through the purported businesses. 

According to Social Security Administration records, there were no Forms W-3, Transmittal or Wage and Tax Statements, nor Forms W-2, Wage and Tax Statements processed for any of the defendants’ entities between 2018 and 2020.

Based on the defendants’ alleged misrepresentations, the lenders and the SBA approved the defendants’ PPP loan and EIDL applications and provided their purported businesses with approximately $2.1 million in federal COVID-19 emergency relief funds meant for distressed small businesses. 

Of this amount, Arlen G. Encarnacion received approximately $1.69 million, Kent Encarnacion approximately $156,000, and Jacquelyn Pena approximately $335,000. 

The defendants then transferred a substantial portion of the proceeds, including in connection with Jacquelyn Pena’s purchase of real estate and Arlen G. Encarnacion’s purchase of a luxury Lamborghini SUV.

Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud Hotline at 866-720-5721 or via the NCDF Web Complaint Form.