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CARES Act’s Paycheck Protection Program (PPP) Fraud Risks and Allegations: What Companies should Know and Do

Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act aimed to provide crucial benefits to individuals and firms negatively impacted by the novel coronavirus (COVID-19) outbreak. One of the centerpieces of the CARES Act was the Paycheck Protection Program (PPP), which received almost $350 billion in federal funds to help alleviate financial challenges affecting small and mid-sized firms. However, the PPP was depleted in minutes, and many eligible companies were left with inadequate funds. Unfortunately, the PPP’s rapid allocation depletion and complex application rollout also raised various concerns over fraudulent activities. In light of these concerns and recent PPP flaws, the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) seeks feedback from lenders on how to improve future programs and address PPP issues. The OCC, in particular, will focus on identifying and preventing loan stacking, wherein one applicant receives PPP loans from multiple lenders, among other PPP fraud risks.

PPP Fraud Types and Examples

As with all federal programs, PPP recipients must comply with the program’s criteria and legal provisions to prevent allegations of fraud. Federal fraud in relation to the PPP may arise from different acts or omissions, whether intentional or inadvertent. Here are six possible types of PPP loan fraud and their corresponding examples:

1. Loan “Stacking”
Loan stacking occurs when a single applicant secures PPP loans from several lenders. PPP loan recipients that obtained funds from multiple PPP lenders may face charges and severe penalties, as the federal government can monitor the PPP’s fund distribution easily.

2. PPP Loan Application Fraud
The PPP had various eligibility requirements that companies had to satisfy to obtain financial relief, such as the 500-employee limit. Companies that falsified eligibility information on the PPP loan application, such as employee numbers, sizes, or payroll costs, may face prosecution for federal fraud.

3. Fraudulent Loan Certification
To acquire a PPP loan, applicants must certify that their funds will be utilized for qualified expenses, such as payroll, mortgage, rent, and utility payments, and that their supporting documents are truthful and accurate. Any bad-faith certifications may lead to accusations of federal fraud.

4. Ineligible Business Purposes
PPP funds must be used only for specific business expenses, as detailed in item 5. If PPP recipients utilize PPP funds for any unauthorized purposes, they may face allegations of federal fraud.

5. Fraudulent Purposes
PPP loan fraud may also involve using PPP funds for fraudulent activities, such as diverting funds for personal or unlawful purposes. The government will not only prosecute the companies that obtained PPP loans through fraudulent means but also pursue individuals involved in fraudulent activities.

6. Fraudulent Loan Forgiveness Certification
To obtain PPP loan forgiveness, borrowers need to submit documents proving that they fulfilled the eligibility criteria and used the PPP funds accordingly, among other requirements. They must also certify that the documents submitted are correct and reflect the use of the forgiveness amount for authorized expenses only.

What Companies Must Do to Prove PPP Compliance

Firms that secured PPP loans must ensure compliance with the program’s requirements and carefully document their authorized and unauthorized expenses’ sources of payment. Proving PPP compliance can be challenging, and in case of federal audits or investigations, firms should engage competent federal defense counsel promptly to avoid potential risks of facing severe penalties, fines, or imprisonment resulting from fraudulent activities.

Conclusion

The PPP fraud risks and allegations are serious matters that companies must not take lightly. Firms facing PPP loan fraud audits or investigations must seek immediate assistance from competent federal defense counsel. Spodek Law Group’s experienced defense attorneys can help protect your rights and provide effective legal representation in all aspects of PPP issues and COVID-19 related matters. Don’t let PPP loan fraud allegations threaten your business or your future. Act now and safeguard your interests.