The Paycheck Protection Program (PPP) was a key feature of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020, to provide various benefits to individuals and companies impacted by the COVID-19 pandemic. This Program was established with almost $350 billion in federal funds to provide much-needed financial relief to small and medium-sized businesses that suffered financial strain due to the economic impacts of the pandemic. However, the PPP almost immediately ran out of funds, leaving many companies that should have been eligible to receive loans, without any assistance. As a result, numerous questions have arisen about fraud, and businesses that received PPP loans can expect to face heavy scrutiny from federal authorities.

In response to these concerns and lessons learned from the flaws in the PPP system, the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) is soliciting input from lenders for future programs and how to address issues that have arisen out of PPP. The disorganized nature of the application rollout and the occurrence of similar frauds in similar federal relief programs, may increase the focus on fraud identification. Even companies that inadvertently received funds from the PPP can face the risk of prosecution as federal agencies identify allegedly unlawful recipients.

PPP Loan Fraud is a serious offence, and businesses and individuals can be accused and prosecuted for fraud if they intentionally or inadvertently misrepresent information on their loan applications to fraudulently claim eligibility, stack loans, or use the funds for an ineligible or fraudulent purpose. PPP fraud may lead to prosecution, and it is important for businesses to engage experienced federal counsel who can help mitigate the risk of facing substantial penalties.

Below, we shall explore seven allegations of PPP fraud:

1. Loan “Stacking”

Loan “stacking” refers to the scenario where an applicant receives PPP loans from multiple lenders to enhance their benefit. The OCC specifically mentioned this type of fraud as a focus area in their tracking efforts. Companies that received funds from more than one lender may become early targets in the government’s efforts to prosecute PPP fraud.

2. PPP Loan Application Fraud

PPP loan applicants misrepresenting information on their loan applications in order to fraudulently claim eligibility are likely to face prosecution under PPP fraud. This includes misclassifying employees as independent contractors and misrepresenting the company’s number of employees concerning most industries’ eligibility requirements.

3. Fraudulent Loan Certification

PPP loan applicants are required to certify to various facts in good faith that their loan will fund essential operations and that they will not receive another PPP loan, among other things. Any bad-faith certification has the potential to lead to charges for federal fraud.

4. Using PPP Funds for Ineligible Business Purposes

PPP funds are only eligible for payroll, interest on mortgage obligations, rent, and utilities. Using PPP funds for any other purpose is impermissible as it is considered PPP fraud.

5. Using PPP Funds for Fraudulent Purposes

Under PPP guidelines, personal guarantees are unnecessary. However, the government will pursue criminal charges against both companies and individuals who use PPP funds for fraudulent purposes.

6. Fraudulent Loan Forgiveness Certification

Although the PPP has a low-interest rate, most businesses might require loan forgiveness. To be eligible for the PPP loan forgiveness scheme, companies must provide evidence that they have complied with eligibility criteria continually and used the PPP funds for authorized expenses.

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

Companies that have received PPP loan funds will undergo audits and investigations related to their use of PPP funds. Thus, it is vital to avoid making any misrepresentations or withholding any information required to be disclosed to federal authorities. Making false statements to federal law enforcement agents is considered fraud, and violators can face individual prosecution.

What Should Companies Do in Case of Alleged SBA PPP Loan Fraud?
Suppose your company is the subject of a PPP loan fraud audit or investigation. In that case, the most critical step is to seek experienced federal defense counsel immediately before attempting to respond to these charges. This is a serious issue that demands immediate attention, and you should rely on competent attorneys’ advice and representation to help resolve the matter. At Spodek Law Group, our skilled defense attorneys are representing clients in a wide range of issues related to the COVID-19 pandemic. If you are facing allegations of PPP loan fraud, our skilled attorneys can represent you and provide reliable guidance.