BUFFALO, N.Y.—The ownership group of the adult entertainment venue chain Mustang Sally's, operating across Western New York, agreed to settle a federal case alleging that two of the locations of the chain fraudulently obtained relief funds issued by the Small Business Administration (SBA) offered to struggling businesses during the COVID-19 pandemic.
U.S. Attorney Michael DiGiacomo of the Western District of New York announced the settlement with the clubs on Thursday. DiGiacomo explained that the Mustang Sally's locations around Buffalo and the surrounding metro region agreed to pay $354,176 to settle the allegations that arose from the federal False Claims Act.
Mustang Sally's ownership requested pandemic relief funding through the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. SBA issued regulations prohibiting specific adult-oriented businesses and freelancers from accessing PPP and EIDL relief funds, despite COVID lockdowns impacting most in-person businesses. The regulation from the Small Business Administration that DiGiacomo cites notes that prohibited businesses include those "which: (1) Present live performances of a prurient sexual nature; or (2) Derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature."
Under his office's interpretation, this disqualifies businesses like Mustang Sally's from obtaining PPP and EIDL funds. Mustang Sally's received $177,088 in both years of the pandemic, 2020 and 2021, through both of these funds and stands accused of falsely certifying the eligibility of their business under the SBA criteria.
DiGiacomo said, "PPP and EIDL funds were meant for eligible businesses to help them through the depths of the COVID pandemic. This settlement demonstrates my office’s commitment to ensuring that taxpayer funds are used for the purposes they were intended and by the businesses for which they were intended."
According to DiGiacomo's office, the investigation into Mustang Sally's was coordinated between federal agents, his office, the Buffalo field division of the U.S. Secret Service and the Criminal Investigation Division of the Internal Revenue Service.
DiGiacomo also noted that this settlement derives from interagency coordination under President Donald Trump's Task Force to Eliminate Fraud.