In the short history of pandemic rescue loan program fraud, the charges against Casey Crowther stand out. 

On Sept. 2, officers from the Lee County, Fla. sheriff's department arrested Crowther, the owner of Target Roofing & Sheet Metal, a $32-million-a year contractor based in Fort Myers, Fla. The central charge against him is that he bought a $689,000 pleasure boat with borrowed funds from the federal Paycheck Protection Program (PPP) created by Congress so virus-impacted small businesses could keep employees on the payroll.

As the largest-revenue construction business charged with fraud, and federal prosecutors claiming Crowther faces up to 30 years in prison, the accusations confirm dark expectations about the program’s vulnerability to abuse that simple methods can prevent.

News of Crowther’s arrest, including a TV station’s reposting of social media video of Crowther on the 40-ft-long Catamaran, caught the attention of management consultants and accountants.

Crowther

“Somebody should have said no,” when Crowther wired the funds out of its original account, said Michael McLin, managing director of Maxim Consulting Group.

Others suggest that fraud and abuse are inevitable in such a program and, if the charges are true, hubris and disregard for the rules is all the explanation that is needed to understand the alleged crimes.

Jack Callahan, a partner in accountant CohnReznick’s construction practice, says any large government program put together so rapidly with little guidance was bound to be “fraught with corruption.”

At his arraignment, Crowther posted a $100,000 bond. Through a spokesman, he declined to comment or say how he would plea in federal court in Fort Myers.

Crowther, 35, has deep roots in southwest Florida's roofing industry. His father, David Crowther has operated since 2010 an independent roofing contractor, CFS Roofing Services. His grandfather, Lee J. Crowther, owns Crowther Roofing & Sheet Metal.

The firms owned by Casey Crowther and David Crowther received PPP loans through the same small Florida lender, Sanibel Captiva Community Bank. Crowther Roofing & Sheet Metal is not a loan recipient.

David Crowther has not been charged with any crimes related to either PPP loan.

Loans From The Community Bank

After the coronavirus pandemic struck, the rescue program was set up to disburse funds from Congress through the U.S. Small Business Administration. On April 7 SBA approved a loan through Sanibel Captiva bank to Target Roofing & Sheet Metal. The SBA data listed Target's staff numbering 135. The actual amount borrowed and potentially forgivable was $2.01 million and it was deposited into a checking account named “Target Roofing & Sheet Metal Inc.—PPP Loan.”

As a PPP borrower, Crowther was obliged to spend most of the money on salaries, rent, utilities or other expenses related to keeping employees on the job. Loans would be forgiven if 60% is used on payroll over 24 weeks.

He also signed certifications, common to the applications used by several banks, that “current economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant” that no other source of liquidity existed and funds would be used for specified purposes.

Straying from the guidelines, the application warned, could bring a criminal investigation.

The language of FAQ guidance on SBA’s website, however, also described a type of PPP certification safe harbor stating that companies borrowing less than $2 million would automatically “be deemed to have made the required certification” on the necessity of the loan in good faith.

Within days of receiving the funds, according to the charges filed in federal court in Fort Myers, Crowther wired $3,300 into an account that he and his wife used for personal expenses. He sent another $100,000 to an account to be used as a loan to a former partner or employee.

Crowther wired the largest part of the money, $689,000, to a dealer for the new boat. He later posted a social media video of himself and children on the boat, motoring across the waters near his home.

Financial Management Basics

In common business practice checks, bank withdrawals or wire transfers above a certain threshold often require a second person’s approval—even if the first person is the 100% owner. Management consultant McLin says the practice is often referred to as segregation of duties or duplication in review.

“I’m of the opinion that in a business of that size the checks ought to be signed by two parties in the organization,” said McLin, with the second person being an accountant, controller, treasurer or chief financial officer. A simple stamp is all that may be necessary. 

But no built-in “brake” appears to have been in place at Target Roofing, of which Casey Crowther was sole owner.

Todd Haugh, associate professor of business law and ethics at Indiana University, says that in 100%-owned businesses, the owner sometimes tend to believe that since all business proceeds come to the owner and family, where relevant, all the money is theirs to use as they wish.

The “idea of funds being verified or certified is in some way lost on people,” Haugh says. “It doesn’t excuse the wrongdoing but does sometimes explain it.”

Accountants: Honesty Required

Specifically, federal prosecutors charge Crowther with making a misleading statement to a lender.

The $510-billion PPP loan program, which was limited to companies with 500 employees or fewer, relied on local banks as fast-acting funnels for the SBA funds. Community banks provided financial lifelines under the rescue program loans to smaller companies.

Federal law and U.S. Treasury Dept. rules require banks to both know their customers and to make a formal notice of any suspicious activity to banking and law enforcement agencies. 

Contacted by phone, Sanibel Captiva bank Chief Financial Officer David Hall cited the bank’s obligation to protect its customers’ confidentiality and declined to comment on any aspect of Casey Crowther’s alleged fraud.

He also declined to say whether Target Roofing & Sheet Metal was a bank customer or if the contractor was the subject of a bank suspicious activity report.

Accountants who have worked extensively with construction companies say that banks hurried so many PPP loans out the door so fast in the nerve-rattling early pandemic shutdown months that some corruption was inevitable. Federal prosecutors seeking out the corruption have said the same thing. 

CohnReznick’s Callahan acknowledges the limited oversight by the federal government as it expedited PPP funding in the spring.

“You tell them how much money you want, supported with tax returns which no one could verify the accuracy of, and we will write you a check,” is the way Callahan describes the government approach.

“It’s like any government program, especially a government program that was rushed out as fast as it was and with as little guidance as it was, it is going to be fraught with corruption,” he said.

While there has been ambiguity over many PPP details, from tax liability to eligibility for loan forgiveness, that does not excuse or mitigate the misuse of funds, Callahan said, noting their intent is "to keep your employees on the books and the lights on.”

Joseph Natarelli, national leader of construction services at accountant Marcum, says he could see a contractor legitimately getting confused, commingling PPP money with other funds to buy a piece of equipment or other business expense.

But Natarelli sees no wiggle room to claim confusion–or even moral hazard–as a mitigating factor.

“To be frank, the program was very, very clear what those funds could be used for, for payroll and rent,” Natarelli said.

Both Callahan and Natarelli were loath to point fingers at the banks, noting their no-win situation in processing an avalanche of loans on which they won’t make money, with many not wanting to get involved in the PPP program over concerns related to liability.

“Think of the bank officer who does hundreds of loans a week, and is now being forced to process 10,000 loans in a day,” Callahan says. “Everyone hit the send button the same day on April 3.”

Responses By Family

In the days after Casey Crowther's arrest, news of the charges exploded across the Internet and news media. A local TV station videotaped two small business owners denouncing him.

No other staff of Target Roofing & Sheet Metal are accused of doing anything wrong, and the company continues to build and operate.

But shortly after Crowther's arrest, his father and grandfather issued public statements and commented on PPP loans.

“This has become a personal matter for the Crowther family members,” David Crowther’s company stated. “First and foremost, David Crowther and his family will support his son Casey as he moves through the legal process. The allegations cited in the complaint are not associated with David Crowther, CFS Roofing Services or any of its employees.”

According to a story that appeared on a local TV station website, the virus had forced David Crowther to furlough some staff as sales slowed and some projects canceled. SBA records show that on April 6, approval came through for a $2 million-$5 million PPP loan to Crowther Holdings, a corporation related by ownership to CFS Roofing. The company has 175 staff, according to information released by SBA.

The statement continued: “David Crowther recognizes that in today’s climate there is added scrutiny and concern on the use of the Paycheck Protection Program and he has no knowledge of how, where or under what circumstances Target Roofing was awarded or used its funds.”

Crowther Roofing & Sheet Metal said in a statement that its staff was “shocked and disappointed to read of the federal allegations against Casey Crowther.” The statement said there was no connection between Target Roofing, on the one hand, and Crowther Roofing & Sheet Metal, on the other.

Crowther Roofing & Sheet Metal, the statement added, “is a fifth-generation family-owned company” that has operated in southwest Florida for 45 years. The firm said: "We did not apply for nor receive any federal PPP funds."