COVID-19 pandemic has left small and medium-sized businesses financially strained. In response to this, the U.S. government introduced the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included a $350 billion Paycheck Protection Program (PPP) to provide financial relief to such businesses. However, the PPP soon ran out of funds, leaving many eligible businesses out in the cold. With the rapid roll-out of such an extensive program, there are bound to be questions raised about fraud, which is why the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) is seeking ways to address these concerns.
The issue of fraud in relation to the PPP has already garnered increased attention, which is why the federal government plans to scrutinize companies that received PPP loans thoroughly. Companies that fail to comply with PPP regulations should expect to face heavy scrutiny and penalties.
Various Fraud Concerns Identified in Connection to the PPP
Apart from loan “stacking,” other concerns about fraud during the PPP program include fraudulent loan certification, using PPP funds for ineligible business purposes, and fraudulent loan forgiveness certification. Other issues related to fraud are allegations of misrepresenting or concealing information, which could immediately trigger an audit or investigation. These companies may, therefore, require the services of experienced federal defense attorneys to handle their cases.
Loan “Stacking”
One of the primary focuses identified by the OCC, “loan stacking,” refers to companies that obtained PPP loans from multiple lenders by providing false information. This would result in companies obtaining more loan amounts than they are eligible to receive. Companies that received funding from more than one lender could face stiff penalties from the federal government.
PPP Loan Application Fraud
The PPP was established with a set of eligibility criteria designated to keep larger companies from exploiting it. Falsifying information on the loan application in order to fraudulently claim eligibility is a punishable offense and could lead to prosecution. Some of the information that companies can misrepresent on their applications include their number of employees, misclassifying independent contractors as employees, and misrepresenting payroll costs. Only companies with fewer than 500 employees are eligible to receive PPP funds, and anything contrary to this requirement may result in fraud allegations being put forward.
Fraudulent Loan Certification
PPP loan applicants were required to certify various facts that needed to be made in good faith. The certifications for acquiring PPP loans include that only businesses with financial difficulty are entitled to receive such funds. Additionally, bad-faith certifications could lead to federal fraud charges.
Using PPP Funds for Ineligible Business Purposes
Companies that received PPP funds are limited to using them for specific purposes, which include paying payroll costs, paying interest on mortgage obligations, paying rent, and paying for utilities. Companies are mandated to document non-eligible expenses comprehensively in order to prove compliance if a federal audit or investigation is requested. Using PPP funds for anything other than the assigned purposes could lead to allegations of fraud and federal charges against both the company and individual(s) involved.
Fraudulent Loan Forgiveness Certification
Many companies will become eligible for loan forgiveness under the PPP as it has a low-interest rate of 1.00 percent. To qualify for loan forgiveness, companies must provide documentation showing that they have met the eligibility criteria continually and used their PPP funds for authorized expenses. After meeting the requirements, companies must certify compliance to get their loans forgiven.
Misrepresenting or Concealing Information During a PPP Audit or Investigation
In cases where companies face PPP loan fraud, audits and investigations would be launched. During the process, it’s important for companies to avoid withholding any pertinent information or making misrepresentations. Making false statements or withholding information required for disclosure from federal authorities is a form of fraud that could trigger individual prosecution.
What Companies Need to Do if Targeted For SBA PPP Loan Fraud
PPP loan fraud allegations are very serious, requiring immediate attention from experienced counsel. It’s important for companies to engage the services of federal defense attorneys who understand how to fend off federal charges as soon as possible. Oberheiden P.C is a team of experienced federal defense attorneys actively representing clients successfully in various issues related to COVID-19, and the team is fully equipped to offer the services required to protect companies from potential PPP loan fraud allegations.