A Santa Clarita Valley man plead guilty Tuesday to federal charges that he fraudulently obtained more than $1 million in Paycheck Protection Program (PPP) loans for sham companies, officials said.

Raymond Magana, 40, of Santa Clarita, pleaded guilty to one count of fraud in connection with major disaster or emergency benefits, funds he obtained by filing tax documents for fake companies with fraudulent employee benefit, according to an officials Department of Justice (DOJ) press release.

According to his plea agreement, in May and June 2020, Magana submitted PPP loan applications to banks, applications that contained false statements about the number of employees and the amount of payroll expenses.

PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent. Businesses must use PPP loan proceeds for payroll costs, interest on mortgages, rent, and utilities, officials said.

The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within a set period and use at least a certain percentage of the loan towards payroll expenses.

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On June 3, 2020, Magana submitted a PPP loan application to Customer’s Bank for $940,416 for The Building Circle LLC, a company registered in his name. In that application, Magana falsely listed that the company’s average monthly payroll was $376,167, and it employed 40 workers.

Magana admitted to submitting fraudulent tax documents that reported $4,402,000 in annual wages paid to 40 employees in 2019 and $852,000 paid in employee wages during the first quarter of 2020.

Records from the Internal revenue Service (IRS) and California Employment Development Department records showed that the company never reported paying any employees, and the underwriting packet also did not include a list of employees or associates for the company, according to an affidavit filed with a criminal complaint in this case.

Investigators later determined that the Pico Rivera address given as The Building Circle’s headquarters was a 980-square-foot, single-family home that appeared to be a residence, not a business. Ultimately, the loan application was approved and $940,416 was funded to Magana’s shell company on June 4, 2020, the affidavit states.

Magana also admitted that he applied for and received a PPP loan of $360,415 for Forward Builders LLC, another shell company, using fake tax documents and false employee information, and falsely claiming $1.73 million in employee wages.

When a bank manager contacted Magana after one of the business accounts receiving PPP funds had been frozen because of suspicious activity, he told the bank “We have all the documents, we got approved,” and he refused to agree to return the improperly obtained PPP funds, the affidavit states.

Nonetheless, the bank kept the $940,416 in the defendant’s bank account frozen so Magana could not access it, the plea agreement states.

The actual loss from the two loans that were approved and disbursed was $360,415, according to the plea agreement.

In December 2020, Steven R. Goldstein, 36, of Northridge, Magana’s business partner, pleaded guilty to a single-count, charging him with fraud in connection with major disaster or emergency benefits. Goldstein admitted that he fraudulently obtained $655,000 in PPP loans for his companies by submitting false tax documents and fake employee information. Goldstein’s sentencing hearing is scheduled for March 30.

United States District Judge Stanley Blumenfeld Jr. has scheduled a May 11 sentencing hearing, at which time Magana will face a statutory maximum sentence of 30 years in federal prison.

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