East Granby Woman Admits To $1.1 Million Pandemic Relief Program Scheme

NEW HAVEN, CT — A resident of East Granby waived her right to be indicted and pleaded guilty in federal court Thursday to offenses stemming from a scheme to defraud COVID-19 pandemic relief programs of more than $1.1 million.

Karen Gaston, 44, pleaded guilty to wire fraud, which carries a maximum term of imprisonment of 20 years, and making illegal monetary transactions, which carries a maximum term of imprisonment of 10 years. The plea was made before U.S. District Judge Sarah F. Russell in New Haven, according to David X. Sullivan, U.S. Attorney for the District of Connecticut, and Harry Chavis, Special Agent in Charge of IRS Criminal Investigation in New England.

In March 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act provided emergency financial assistance to Americans suffering the economic effects caused by the COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of forgivable loans to small businesses for job retention and certain other expenses through the Paycheck Protection Program (“PPP”). The PPP was overseen by the U.S. Small Business Administration (“SBA”), and individual PPP loans were issued by private lenders, which received and processed PPP applications and supporting documentation, and then made loans using the lenders’ own funds, which were guaranteed by the SBA. The CARES Act also authorized SBA to distribute Economic Injury Disaster Loans (“EIDLs”), which provided working capital to eligible small businesses, including sole proprietors, to meet operating expenses, Sullivan said.

According to court documents and statements made in court, in 2020, Gaston controlled certain entities including LNK, Elegant Clinical, Ruby Red LLC, and Diamond Shine LLC. LNK and Diamond Shine LLC were operational, but shared resources and employees. Ruby Red LLC had only one client and Gaston was its sole employee. Elegant Clinical was no longer operational, Sullivan said.

Beginning around April 2020, Gaston submitted loan applications to the PPP and EIDL programs that falsely represented the status of the operations, resources, and employees of these entities. She also filed loan applications at separate financial institutions in order to disguise the true nature of her criminal activity, Sullivan said.

Specifically, Gaston’s loan applications falsely represented that her businesses were all active and operating concerns; falsely represented the number of employees and the amount of wages purportedly paid by the businesses; included copies of fraudulent tax returns and tax related documents; and falsely represented that a family member, used as an applicant on an application, was a part owner of one of her entities, Sullivan said.

Gaston received $1,163,910 in PPP and EIDL loan funds through this scheme. Instead of using the funds for payroll or other operating expenses, she spent the money on personal expenditures, including travel, food, luxury home goods, expensive jewelry, cars and paying off her home mortgage, according to Sullivan.

Gaston is released on a $100,000 bond pending sentencing, which is not yet scheduled. She has agreed to make full restitution, and also agreed to the forfeiture of a ring she purchased in July 2020 from the jeweler Harry Winston for $39,521.63, Sullivan said.