David X. Sullivan, United States Attorney for the District of Connecticut, and Harry Chavis, Special Agent in Charge of IRS Criminal Investigation in New England, announced that Karen Gaston, 44, from East Granby, has pleaded guilty to charges related to defrauding COVID-19 pandemic relief programs of over $1.1 million. The plea was entered before U.S. District Judge Sarah F. Russell in New Haven.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act of March 2020 provided financial assistance to Americans affected by the pandemic's economic impact. This included forgivable loans through the Paycheck Protection Program (PPP), overseen by the U.S. Small Business Administration (SBA). These loans were issued by private lenders using their own funds but guaranteed by the SBA. Additionally, Economic Injury Disaster Loans (EIDLs) were authorized to provide working capital to eligible small businesses.
Court documents reveal that in 2020 Gaston controlled several entities including LNK, Elegant Clinical, Ruby Red LLC, and Diamond Shine LLC. While LNK and Diamond Shine LLC were operational with shared resources and employees, Ruby Red LLC had only one client with Gaston as its sole employee. Elegant Clinical was no longer operational at that time.
Starting around April 2020, Gaston submitted false loan applications to PPP and EIDL programs misrepresenting her businesses' operations and employee status. She also filed applications at different financial institutions to conceal her activities.
Her applications falsely claimed active business operations and inflated employee numbers and wages; they included fraudulent tax documents and misrepresented a family member as a part owner on an application.
Through this scheme, Gaston received $1,163,910 in loan funds which she used for personal expenses such as travel, luxury goods including jewelry from Harry Winston worth $39,521.63 instead of business purposes like payroll or operating costs.
Gaston has pleaded guilty to wire fraud with a potential maximum sentence of 20 years imprisonment and making illegal monetary transactions carrying up to 10 years imprisonment. She agreed to full restitution and forfeiture of assets obtained through fraudulent means.
Currently released on a $100,000 bond pending sentencing which is yet unscheduled; this investigation was conducted by the IRS Criminal Investigation Division while Assistant U.S Attorney Michael S McGarry prosecutes this case.
The public is encouraged to report any information regarding COVID-19 fraud allegations via the Department of Justice’s National Center for Disaster Fraud Hotline at 866-720-5721 or online at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form
