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story.lead_photo.caption Sally Jung, left, and Clifton Pape, right, are charged in federal court in Texarkana with defrauding the United States. The defendants allegedly operated a scheme involving grants for small businesses in the Texarkana area.

TEXARKANA, Texas — A criminal complaint unsealed Wednesday in a Texarkana federal court accuses a Liberty County, Texas, man and woman of defrauding the government of more than a $1 million in funds meant to help small businesses survive the COVID-19 pandemic.

Liberty County is located between Beaumont and Houston.

Clifton Pape, 45, and Sally Jung, 58, allegedly involved members of the public, including residents in the Texarkana area, in their scheme, according to the complaint. Pape and Jung allegedly filed hundreds of fraudulent Economic Injury Disaster Loan applications with the Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act.

Pape and Jung allegedly operated a business called "My Buddy Loans" which offered to get applicants $10,000 forgivable advances on EIDL loans. Applicants were limited to small businesses with at least 10 employees and the funds were to be used for specific purposes.

According to the complaint, a bank in the jurisdiction of the Texarkana Division of the Eastern District of Texas alerted federal officials in July to suspicious activity involving two area residents and EIDL funds. Investigators determined the residents had been charged approximately $1,000, or 10% of the total EIDL, for processing the application.

That application and many others were allegedly prepared by Pape and Jung under a Buddy Loan with fraudulent information. Pape and Jung allegedly pocketed more than $700,000 in the scheme.

One of the cooperating individuals mentioned in the complaint was allegedly denied a loan directly through the SBA but managed to acquire funding using My Buddy Loans. Pape and Jung were allegedly providing false information to acquire funds for customers who paid My Buddy Loans $1,000 plus tax for the service.

At least one person who received EIDL funds through My Buddy Loans operates a business with fewer than 10 employees and should not have been eligible.

On Aug. 31, investigators with the U.S. Secret Service conducted a "controlled buy" from My Buddy Loans which allegedly revealed false information was being submitted to acquire the funds which were routinely processed through the Square credit and debit card service.

Pape and Jung allegedly used nearly $4,000 of the ill-gotten government funds to cover a stay in August at a resort in San Antonio, Texas. A photo of Pape and Jung toasting while at the resort is included in the criminal complaint and was allegedly recovered from a digital account controlled by Jung.

Agents made contact with Pape and Jung on Tuesday at a location described in the complaint as "subject premises." The complaint notes that more than $500,000 was seized by the government from a bank account controlled by the defendants.

During a search of the premises where Pape and Jung were arrested, agents recovered numerous cell phones, computers and Small Business Administration documentation.

"The defendants falsely represented to third parties that a $10,000.00 agricultural grant was available from the United

States government. The defendants submitted EIDL loan applications in the names of third parties that contained false information, including the number of employees," the complaint states. "The defendants, in exchange for submitting the false EIDL loan applications, charged third parties at least $1,000 via a credit or debit card processed through Square."

Pape and Jung face up to 10 years in prison and a fine up to $5 million.

Court records in the Texarkana Division of the Eastern District of Texas do not indicate whether Pape and Jung have made initial court appearances in the case.

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