Timothy Wadsworth Was Already Running a Fraud When the EIDL Money Arrived

Timothy Wadsworth was pushing other people's credit card numbers through a payment processor by March 10, 2020. He did not file his first Economic Injury Disaster Loan application until May 13.

Sixty-four days sit between those two dates, and they are the most useful thing in the file.

On October 23, U.S. District Judge Frank P. Geraci, Jr. sentenced Wadsworth, 35, of Rochester, New York, to 51 months in prison, ordered $810,965.19 in restitution, and ordered forfeiture of the wire fraud proceeds he received. He was convicted of conspiracy to commit wire fraud and money laundering. The Justice Department's announcement does not say whether that conviction followed a plea or a trial.

Prosecutors put his actual and intended losses at $2,059,893, drawn from six separate sources of money running at the same time. EIDL and PPP account for roughly an eighth of it.

The EIDL money was not the beginning

Most pandemic relief cases that reach sentencing follow one shape. A business owner, real or invented, saw an open window in 2020 and reached through it. The fraud started when the program started, and it ended when the money did.

This one does not fit that shape. By the time Wadsworth submitted anything to the Small Business Administration, he had been processing unauthorized charges for more than two months, according to the U.S. Attorney's Office for the Western District of New York.

The relief programs did not start anything here. They were added to something already moving.

Where the $2 million came from

The math on the Justice Department's own numbers are riveting.

The credit card scheme is the bulk of it. Between March 10 and May 15, 2020, prosecutors say Wadsworth used a Stripe account to attempt 310 payments totaling $1,673,578 on card numbers supplied by coconspirators. The account holders had not authorized the charges. He then moved proceeds through accounts at HSBC and Evolve Federal Credit Union into Coinbase, bought Bitcoin, and sent it to outside addresses.

The government programs come next. Between May 2020 and May 2021, he and others filed nine EIDL applications containing false statements about the businesses' revenue and operations. Three were approved, and $161,200 reached his accounts. In the spring of 2021, he applied for six PPP loans totaling $91,219; two were funded, at $20,833 and $20,416. Separately, prosecutors say he collected about $65,896 in unemployment benefits from New York State, Washington State, and the Department of Labor during a period when he was not eligible from any source.

Then the individuals. A recently widowed woman met someone on Facebook who said he was working on an oil rig and needed $42,000 to get back to the United States. On March 20, 2020, she wired it to Wadsworth's account. Six other victims lost $26,000 between them.

Those figures add to $2,059,893, which is the total the Justice Department states. The credit card scheme is more than four-fifths of it. EIDL and PPP together are about 12 percent.

The ratio worth noticing

There is a pattern in the numbers that has nothing to do with which program was targeted.

Of 310 attempted card payments, 116 went through. Of nine EIDL applications, three were approved. Of six PPP applications, two were funded. Three different channels, three different sets of controls, and in each one roughly a third of the attempts landed.

The channels are not really comparable, and one case proves nothing on its own. But the operating logic it suggests is familiar to anyone who has watched volume-based fraud. You are not trying to make any single submission survive scrutiny. You are making enough submissions that the survivors cover the work.

That is a different problem from the one most relief fraud coverage describes. A single inflated payroll figure gets caught by checking the payroll. A pipeline priced for a one-in-three hit rate gets caught by noticing the pipeline.

Where this fits in the pattern

We have covered a run of these cases this fall, and they have mostly been variations on the same person: an operator whose business was real, or had been, who misrepresented it to a federal program.

Wadsworth is a different type of defendant. For him, EIDL and PPP were not a temptation that turned a struggling business owner into a criminal. They were two more channels added to an operation that already had several, alongside stolen card numbers, unemployment systems in three jurisdictions, and a widow on Facebook.

The 2020 programs did not only make first-time fraudsters out of desperate business owners. They also opened a new window for people already working every other window in the building. Six years on, with the ten-year limitations period on PPP and EIDL borrower fraud running into 2030 and 2031, the files still being worked on are increasingly the complicated ones.