The ownership group of the Mustang Sally's adult entertainment chain, operating in Western New York, has agreed to a settlement in a federal case. The settlement addresses allegations that two of its locations fraudulently obtained COVID-19 relief funds from the Small Business Administration (SBA).
U.S. Attorney Michael DiGiacomo of the Western District of New York announced on Thursday that the Mustang Sally's locations in the Buffalo metropolitan region will pay $354,176. This payment resolves allegations stemming from the federal False Claims Act.
Allegations of Fraudulent Funding
Mustang Sally's ownership applied for pandemic relief funding through both the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. The SBA had issued regulations that specifically prohibited certain adult-oriented businesses from accessing these funds, despite the widespread impact of COVID-19 lockdowns on in-person businesses.
The SBA regulation cited by DiGiacomo specifies that prohibited businesses include those which "present live performances of a prurient sexual nature" or "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."
According to DiGiacomo's office, their interpretation of this regulation disqualifies businesses such as Mustang Sally's from receiving PPP and EIDL funds. Mustang Sally's received a total of $177,088 in both 2020 and 2021 through these programs. The clubs are accused of falsely certifying their eligibility under the SBA criteria.
The United States alleged that the clubs violated the False Claims Act by falsely certifying their eligibility for funding. The civil settlement also resolves pending civil forfeiture litigation in the U.S. District Court for the Western District of New York, which sought the forfeiture of a vehicle that prosecutors contended was proceeds of the clubs' PPP and/or EIDL proceeds.
DiGiacomo stated that PPP and EIDL funds were intended for eligible businesses to assist them during the COVID-19 pandemic. He added that the settlement demonstrates his office's commitment to ensuring taxpayer funds are used for their intended purposes and by the businesses for which they were intended.
Investigation and Coordination
The investigation into Mustang Sally's was a coordinated effort involving federal agents, DiGiacomo's office, the Buffalo field division of the U.S. Secret Service, and the Criminal Investigation Division of the Internal Revenue Service. This settlement is a result of interagency coordination under President Donald Trump's Task Force to Eliminate Fraud.
The two specific locations of Mustang Sally's Spirit and Grill involved in the settlement are 5111 Genesee St. and 414 W Ridge Road. SBA rules explicitly stated that adult-entertainment businesses presenting nude and semi-nude erotic dancing could not receive funding.
Related Cases and Broader Context
In a separate but related development, Peter Gerace Jr., identified as the owner of Pharaoh’s Gentlemen’s Club in Cheektowaga, faces additional charges related to COVID-19 fraud. Gerace Jr. allegedly falsely informed federal loan officers that Pharaoh’s Gentlemen’s Club did not host live performances of a prurient sexual nature.
Police raided Gerace Jr.’s Pharaoh’s Gentlemen’s Club on Aero Drive in Cheektowaga in 2019 as part of an investigation into alleged sex- and drug-trafficking. Jessica Leyland was sentenced to 30 months in prison for threatening to kill a dancer who provided information to federal agents.
The Department of Justice announced the creation of the National Fraud Enforcement Task Force on April 7. This task force aims to combat fraud nationwide.
Key Facts
- The ownership group of Mustang Sally's, an adult entertainment venue chain in Western New York, settled a federal case.
- The settlement addresses allegations that two Mustang Sally's locations fraudulently obtained COVID-19 relief funds.
- U.S. Attorney Michael DiGiacomo announced the settlement on Thursday, August 14, 2026.
- The clubs agreed to pay $354,176 to resolve allegations under the federal False Claims Act.
- Mustang Sally's applied for Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) funds.
- SBA regulations prohibited adult-oriented businesses, including those with live performances of a prurient sexual nature, from receiving these funds.
- Mustang Sally's received $177,088 in 2020 and 2021 and is accused of falsely certifying eligibility.
- The investigation involved the U.S. Secret Service and the Criminal Investigation Division of the Internal Revenue Service.
- The settlement is part of interagency coordination under President Donald Trump's Task Force to Eliminate Fraud.
- Peter Gerace Jr., owner of Pharaoh’s Gentlemen’s Club, faces additional COVID-19 fraud charges, separate from the Mustang Sally's settlement.
