The Paycheck Protection Program (PPP) was a crucial element in the US government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was put into law on March 27, 2020. The Act was designed to offer various types of relief to individuals, companies, and organizations affected by the COVID-19 pandemic. By far, the most significant component of the CARES Act was the $350 billion fund allocated to the PPP, aimed at providing financial support to small and medium-sized enterprises that are reeling under the economic strain created by the coronavirus crisis.

Although the PPP was a massive fund, it was entirely depleted within minutes of opening its doors to application after lenders participating in the program were overwhelmed with requests. Quite a few businesses that legitimately qualified for the PPP could not receive the loans they needed, leaving them with financial hardship. The federal government always faces scrutiny and questions about fraud when it provides financial relief programs, and the PPP was not an exception. However, due to how the program unfolded and the incredible pace at which its multi-billion-dollar allocation was utilized, it is expected that many companies that obtained PPP loans will soon face intense scrutiny from the authorities.

Various fraud-related concerns have arisen with respect to the PPP. Therefore, the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) has requested feedback from lenders to help identify “lessons learned” and improve future programs further. As FastCompany.com reported, the subject of fraud identification in relation to the PPP will be under increased scrutiny, particularly considering that other federal aid programs have been plagued with fraudsters.

Aside from the OCC’s efforts, different agencies are reviewing applications and using various other approaches to investigate and identify companies that unlawfully accepted funds from the PPP. These companies are at high risk of prosecution since the PPP’s rapid exhaustion and negative notoriety garnered widespread attention. Therefore, such companies will significantly benefit from consulting skilled federal counsel to offer assistance in mitigating their exposure to significant penalties.

PPP Loan Fraud Allegations

There are different warranted claims of federal fraud regarding the PPP, as with all federal programs. This includes not just intentional misrepresentations that could lead to criminal fraud charges but also inadvertent mistakes that resulted in the improper receipt of federal funds.

To illustrate, the following comprises some of the fraud allegations that may arise in relation to PPP:

1. Loan Stacking

Loan stacking is one type of potential fraud that the OCC has highlighted. It involves a PPP applicant receiving loans from various lenders, and the OCC’s website confirms that the regulator will specifically focus on this type of fraud. It is possible to track the allocation of all PPP funds by the federal government, making companies that received funds from more than one lender the USA government’s early targets of prosecution for PPP fraud.

2. PPP Loan Application Fraud

The PPP had multiple criteria for eligibility, and companies that misrepresented information on their loan applications in order to fraudulently claim eligibility now face the possibility of prosecution. For example, misrepresenting:

– The number of employees at the company;
– Misclassifying workers as independent contractors;
– Misrepresenting the company’s payroll costs to increase the loan amount;
– Misrepresenting that a company with more than 500 workers in a particular industry satisfies the applicable Small Business Administration (SBA) employee-based size requirements.

3. Fraudulent Loan Certification

PPP loan applicants were compelled to certify to various criteria, which needed to be true to the best of their knowledge and belief. Bad faith certifications could lead to federal fraud charges, and in this respect, mandatory certifications for PPP loans include but are not limited to:

– The loan is essential to support the company’s ongoing operations, given the existing economic uncertainty;
– The funds received will be used to preserve workers and maintain payroll or to make mortgage, lease, and utility payments;
– The company has not received and will not acquire another loan under the PPP;
– The information provided during the application phase and any supporting documents and forms are accurate and truthful.

4. Using PPP Funds for Ineligible Business Purposes

The recipients of PPP loans can use the funds for only four specific purposes, namely to pay payroll costs (including benefits), pay interest on mortgage commitments, make rental payments, and pay for utilities. Concerning interest, rent, and utilities, PPP funds can only be expended in covering an obligation that existed on or before February 15, 2020. Such use of PPP funds constitutes fraud and will attract allegations of fraudulent activities.

5. Using PPP Funds for Fraudulent Purposes

The US Treasury Department’s Paycheck Protection Program (PPP) Information Sheet declares: “There is no personal guarantee requirement [under the PPP]. . . . However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.” This means that the government hopes to chase not only companies that fraudulently obtain funds through the PPP but also individuals who are involved in such fraudulent activities. Under the False Claims Act, individuals can face tens of thousands of dollars’ worth of fines and up to five years in federal imprisonment if they fraudulently obtain funds from the PPP. Company owners and executives may face hundreds of millions of dollars in criminal fines and decades behind bars if federal prosecutors accuse them of multiple statutory offenses (as is usually the case in significant fraud cases).

6. Fraudulent Loan Forgiveness Certification

While the PPP had a low 1% interest rate, various companies are eligible for loan forgiveness. To request loan forgiveness, a company needs to provide evidence that it continually satisfied the eligibility conditions and that PPP funds were legally used for eligible expenses. As per the U.S. Treasury Department, companies also need to “certify that the documents are true and that [they] used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.”

7. Misrepresenting or Concealing Information During a PPP Audit or Investigation

Various companies will face audits and investigations related to their PPP loan applications. These could be audits or reviews conducted by the Federal Bureau of Investigation (FBI), the U.S. Department of Justice (DOJ), other federal agencies, or task forces specifically formed to detect PPP loan fraud. If your company is audited or investigated, you should refrain from disclosing potentially harmful information while being careful not to make any misrepresentations or conceal critical information crucial to the investigation. Making false statements or withholding information you are required to give federal authorities is itself a type of fraud, and you could face individual prosecution for making false statements to federal law enforcement officers.

The Way Forward in SBA PPP Loan Fraud Cases

In the event that you or your company becomes a target in a PPP loan fraud audit or investigation, engaging an experienced federal defense counsel is critical. Spodek Law Group’s skilled federal defense attorneys are currently representing clients across several enforcement areas related to the novel coronavirus (COVID-19) pandemic, and our experience will assist you when tackling allegations of PPP loan fraud. It is essential to seek immediate assistance as this is a severe matter requiring specialized attention. Thus, relying on expert advice and representation from capable attorneys is crucial.