The indictments are piling up for the owner of Pharaoh’s Gentlemen’s Club.
Peter Gerace Jr. now faces fresh charges that he defrauded the government of $2 million in Covid aid for the Cheektowaga strip club, in what is considered to be one of the largest Covid fraud cases in Western New York.
A federal grand jury indicted Gerace on four counts of wire fraud, adding to his drug- and sex-trafficking charges as well as witness tampering in previous indictments.
Gerace’s lawyer entered a plea of not guilty to the Covid fraud charges at his court proceeding Thursday.
Gerace has been behind bars since March, and given his upcoming August trial on the other felony charges, the Covid fraud charges would “not be the focus of our attention” until the other charges are resolved, defense attorney Eric Soehnlein told U.S. Magistrate Judge Michael J. Roemer.
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According to the new indictment, Gerace tricked and misled the Small Business Administration into approving a loan and two loan modifications under the Economic Injury Disaster Loan program, which provided emergency financial assistance to small businesses to help them meet expenses when they were shut down or curtailed in the early stages of the pandemic.
In the indictment, the government describes Pharaoh’s as a “gentlemen’s club” or “strip club” that offers live sexual performances to patrons in the form of exotic and nude dancing. The club employs the dancers as independent contractors or W-2 employees, and they charge patrons for private or semi-private lap dances. Dancers charge patrons a fixed rate per song and accept tips and they contribute a portion to the club.
The SBA loan applicants are required to certify, among other things, that the business does not present live performances of a prurient sexual nature.
Applicants must also certify they had not ever been convicted of any criminal offense. Gerace was convicted in 2005 of conspiracy to commit wire fraud.
On his initial application, Gerace falsely certified that Pharaoh’s did not present live performances of a sexual nature and that he had never been convicted of any criminal offense, according to the indictment.
The fraud allegations are being charged as wire fraud because his loan application was electronically submitted from Western New York via an internet portal to servers located outside the state.
On April 5, 2020, Gerace submitted the online loan application seeking $150,000 – the first count of the indictment.
He was required to review and sign a loan authorization and agreement, which he did on June 12, 2020, the second count of the indictment.
The third and fourth counts of the indictment pertain to his amended loan agreements in August 2021 and December 2021, which respectively increased the loans to $500,000 and then $2 million.
The fraud counts carry a possible sentence of up to 20 years in prison, Assistant U.S. Attorney David Rudroff said at the court proceeding.
Gerace has not always been locked up since a grand jury returned an indictment in February 2021 charging him with paying a bribe to a public official, maintaining a drug-involved premises, conspiracy to distribute controlled substances, conspiracy to commit sex trafficking and conspiracy to defraud the United States.
If convicted of the third and fourth counts, Gerace could be sentenced to an additional term in prison, up to 10 years, because he allegedly fraudulently amended his loan agreement while he had been released from custody after his February 2021 indictment, Rudroff said.
Gerace was arrested and detained this past March after a grand jury found probable cause that he was responsible for threatening Facebook messages in 2019 to a potential witness against him.
Roemer set a Nov. 13 deadline for motions in the fraud case, with oral argument set for Jan. 10.
The Covid fraud charges do not come as a surprise.
When federal prosecutors sought to put Gerace in pretrial custody following the witness tampering indictment in March, they brought up during a court hearing that the U.S. Attorney’s Office had just received a subpoena response from the SBA regarding Gerace’s Covid aid application.
“It’s clear from that application that the defendant made several material false statements that resulted ultimately in him acquiring $2 million from the Small Business Administration, based upon material misrepresentations that are in this application,” Assistant U.S. Attorney Joseph Tripi said during the March 24 hearing.
As of July 2021, he was under federal indictment, Tripi said, and another question on the loan application amendment reads: Are you presently subject to an indictment?
“And he says no,” Tripi said. “And when he went to extend the loan, there is questions: Has anything changed since the last time? So he should have said yes. I am now under federal indictment. He indicates no. And he gets the loan funded to the tune of $2 million.”
Tripi said Rudroff, the U.S. Attorney’s Office coordinator for Covid prosecutions, estimated “that this is the third or fourth largest fraud of Covid ... in this district.”
In a court filing in April, Soehnlein said Gerace has valid defenses to the Covid fraud allegations and demonstrated efforts to comply with the law.
“Mr. Gerace, like many other business owners, was solicited by a private lender to apply for the loans,” Soehnlein wrote. “Working with his accountant and individuals at the lender, Mr. Gerace prepared the loan applications. He believed at the time that he filled out the application appropriately. He relied on the advice and guidance of individuals he trusted in that regard. Perhaps more importantly, the record shows Mr. Gerace’s business used the money appropriately and that he is repaying the loans – with interest – as contemplated by the program.”
